Indias Energy Politics (Routledge Contemporary South Asia Series)

India’s Energy Security

This book explores the multifaceted aspects of India’s energy security concerns. Bringing together a set of opinions and analysis from experts and policymakers, it sheds light on the context of India’s energy insecurity and explores its various dimensions, its nature and extent. Contributors examine the role that trade, foreign and security policy should play in enhancing India’s energy security. It is argued that the key challenge for India is to increase economic growth while at the same time keeping energy demands low. This is especially challenging with the transition from biomass to fossil fuels, the growth of motorized private transport, and rising incomes, aspirations and changing lifestyles. The book suggests that at this time there are strong arguments to lessen India's fossil fuel dependence and it argues for a need to engage with all the key sources of this dependence to implement a process of energy change. India’s Energy Security is a timely contribution given the national and international interest in the issue of energy security and the possibility that energy concerns could become the cause of serious international conflicts. It will be of interest to academics and policy makers working in the field of Asian Studies, Energy Policy, International Relations and Security Studies. Ligia Noronha is a Senior Fellow and Director of the Resources and Global Security Division of The Energy and Resources Institute (TERI), New Delhi, India. Anant Sudarshan is a PhD student in the Management Science and Engineering department at Stanford University, US and a visiting Research Associate at the Centre for Research on Energy Security at The Energy and Resources Institute (TERI), New Delhi, India.

Routledge Contemporary South Asia Series

1 Pakistan Social and cultural transformations in a Muslim nation Mohammad A. Qadeer

9 Federalism, Nationalism and Development India and the Punjab economy Pritam Singh

2 Labor, Democratization and Development in India and Pakistan Christopher Candland

10 Human Development and Social Power Perspectives from South Asia Ananya Mukherjee Reed

3 China-India Relations Contemporary dynamics Amardeep Athwal

11 The South Asian Diaspora Transnational networks and changing identities Edited by Rajesh Rai and Peter Reeves

4 Madrasas in South Asia Teaching terror? Jamal Malik 5 Labor, Globalization and the State Workers, women and migrants confront neoliberalism Edited by Debdas Banerjee and Michael Goldfield 6 Indian Literature and Popular Cinema Recasting classics Edited by Heidi R.M. Pauwels 7 Islamist Militancy in Bangladesh A complex web Ali Riaz 8 Regionalism in South Asia Negotiating cooperation, institutional structures Kishore C. Dash

12 Pakistan-Japan Relations Continuity and change in economic relations and security interests Ahmad Rashid Malik 13 Himalayan Frontiers of India Historical, geo-political and strategic perspectives K. Warikoo 14 India's Open-Economy Policy Globalism, rivalry, continuity Jalal Alamgir 15 The Separatist Conflict in Sri Lanka Terrorism, ethnicity, political economy Asoka Bandarage 16 India’s Energy Security Edited by Ligia Noronha and Anant Sudarshan

India’s Energy Security

Edited by Ligia Noronha and Anant Sudarshan

First published 2009 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2008. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”

© 2009 Editorial selection and matter, Ligia Noronha and Anant Sudarshan; individual chapters, the contributors All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book has been requested ISBN 0-203-88436-1 Master e-book ISBN

ISBN 10: 0-415-46838-8 (hbk) ISBN 10: 0-203-88436-1 (ebk) ISBN 13: 978-0-415-46838-1 (hbk) ISBN 13: 978-0-203-88436-2 (ebk)

Contents

List of illustrations List of contributors Foreword Preface

vii ix xiii xv

PART I

Understanding India’s energy security concerns 1 Contextualizing India’s energy security

1 3

ANANT SUDARSHAN AND LIGIA NORONHA

2 India’s energy challenges and choices

19

SURYA SETHI

3 Energy and poverty in India

29

ESHITA GUPTA AND ANANT SUDARSHAN

PART II

The global context: trade and geopolitics 4 Trading in the world energy market

49 51

NITYA NANDA

5 Geopolitics of West Asian and Central Asian oil and gas: implications for India’s energy security

64

TALMIZ AHMAD

6 Natural gas pipelines: geopolitics, affordability, security dimensions RAVI KUMAR BATRA

87

vi Contents

7 India–China energy cooperation: Commonalities, synergies and complementarities

97

SUDHA MAHALINGAM

8 Security of maritime energy lifelines: policy imperatives for India

108

GURPREET S. KHURANA

9 Energy security and Indian foreign policy

127

C. RAJA MOHAN

PART III

Energy consumption and technology choices

143

10 Lifestyles and energy consumption

145

MITALI DAS GUPTA

11 Technology options for India’s energy security: a summary of a modelling exercise

162

PRADEEP K. DADHICH

12 Incentivizing change in energy choices

179

AJAY MATHUR, KOSHY CHERAIL, AND DEEPTI MAHAJAN

PART IV

Nuclear energy for India – the debate

191

13 Nuclear power growth: an option for sustaining Indian energy requirements

193

RAVI B. GROVER

14 The many phases of nuclear insecurity

207

M. V. RAMANA AND J. Y. SUCHITRA

15 India's energy security landscape: joining the dots and looking ahead

223

LIGIA NORONHA

Conversion factors Index

234 237

Illustrations

Figures 1.1 1.2 3.1 3.2 4.1 4.2 6.1 10.1 10.2 10.3 10.4 10.5 11.1 11.2 11.3 11.4 11.5 11.6 12.1 12.2

India’s primary energy supply 2003–04 (in EJ) Rising commercial energy consumption in a BAU scenario Primary cooking fuels by MPCE deciles in rural and urban India (2004–05) Households using kerosene and electricity as the primary source of energy for lighting Price indices of commodity fuel, crude oil, natural gas and coal (1995=100) Price indices of natural gas in different markets (1995=100) Natural gas pipelines Growth of registered motor vehicles in India Expected growth in CO2 emissions in India from different transport modes Distribution of households by primary source of energy used for cooking – rural and urban India Distribution of households by primary source of energy used for lighting – rural and urban India OECD and non-OECD residential sector delivered energy consumption 2004–2030 (Quadrillion Btu) Schematic representation of the methodology adopted for the study Commercial energy use (mtoe) in BAU Commericial energy consumption (mtoe) across different sectors in BAU Power generation technology deployment in the BAU and HYB scenarios for 2031 Trends in energy intensity from 2001–2031 Comparison of energy consumption (mtoe) in the transport sector across scenarios BEE energy labels for refrigerators (top) and tube lights (bottom) Application of ECBC reduced the energy demand by more than 50 per cent in a new building being constructed near Delhi

4 9 36 39 54 55 88 147 149 150 152 154 164 168 169 173 174 175 183 188

viii Illustrations 13.1 14.1

Scenarios for growth of India’s installed electricity generating capacity Busbar generation costs of Kaiga I and II, Kaiga III and IV (projected costs), and RTPS VII at 80 per cent capacity factor

195 210

Tables 1.1 3.1 4.1 4.2 4.3 5.1 5.2 5.3 5.4 5.5 5.6 7.1 7.2 10.1 10.2 11.1 11.2 11.3 11.4 11.5 13.1 13.2 13.3 13.4 13.5 13.6 13.7 14.1 14.2 14.3 14.4

Factors aggravating the rise of energy security concerns in India Factors influencing energy choice India’s position in global energy production and trade – 2004 Major exporters and importers of oil, gas and coal – 2005 (in order of their share in global exports/imports) Indicators of global market structure – 2005 Global oil demand forecast: 2025 [in million tonnes per year] Asian gas demand (in billions of cubic meters (bcm)) Global oil import forecasts: 2025 (in million tonnes per year) Oil imports from the Gulf (%) Global gas reserves (in trillions of cubic metres) Gulf and Central Asian oil and gas reserves Share of fuels (per cent) in China’s energy mix China’s oil demand (million tonnes per year) Number of registered motor vehicles per thousand persons in India Penetration of consumer durables (number of households owning goods per ‘000 households) Commercial energy requirements in BAU (mtoe) Projected energy balance for the year 2031 in the BAU scenario Projected energy balance for the year 2031 in the HYB scenario Scenarios in the transport sector Suggested technology deployment programme Actual power supply position in India Installed capacity in MW as on 31.03.2007 Renewable energy resources Population density of selected countries Nuclear fuel resource position and its energy potential Near-term (until 2020) nuclear power programme Nuclear installed capacity growth possibilities until 2052 based on fast reactors (corresponding to scenario II of table 13.6) Cost and other figures for heavy water reactors and thermal plant Cost components and other assumptions Cost of electricity from breeder and heavy water reactors Performance of breeder reactors

8 33 52 57 58 64 65 65 66 67 68 99 101 148 151 167 171 172 175 176 194 195 197 197 198 199 200 208 211 213 214

Contributors

Talmiz Ahmad is currently Ambassador of India to the UAE. Mr Ahmad has been the Indian Ambassador to Saudi Arabia (2000–03) and Oman (2003–4), and Additional Secretary in the Ministry of Petroleum and Natural Gas. His book, Reform in the Arab World – External Influences and Regional Debates, was published in July 2005. He writes and lectures regularly on resurgent Islam, West Asian politics and energy security. Ravi Kumar Batra is a Distinguished Fellow at The Energy and Resources Institute (TERI), New Delhi. He has 35 years’ experience in the petroleum industry, beginning his career in Burmah Shell in 1957 and retiring as Marketing Director of Bharat Petroleum, a Fortune 500 company. He is currently on the Board of Directors of the Energy Institute, India, a chapter of the Energy Institute, London. Koshy Cherail is Senior Consultant – Business Development with Conzerv Systems Pvt Ltd, India. Dr Cherail has more than 20 years of experience in programme implementation, policy analysis and consulting with various bilateral and multi-lateral agencies, including World Bank, USAID and GTZ. He has been associated with the various efforts to organize the ESCOs and EE business in India. He has represented Indian ESCO and EE businesses at various international fora. Pradeep Kumar Dadhich is a Senior Fellow at TERI. He has a Ph.D (IIT Bombay) in Energy Systems Engineering and over 27 years of experience. He has also been a member of the International Energy Agency’s Greenhouse Gas RD&D Executive Committee since 1998. He was one of the lead authors in the IPCC’s special report on carbon dioxide capture and sequestration. He is currently the Head of the Centre for Policy and Regulatory Studies at TERI University, New Delhi. Mitali Das Gupta is Associate Fellow with the AEI and also with the Centre for Research on Energy Security at TERI. She has completed her doctoral thesis from Jadavpur University, Calcutta. She was selected for the International Association for Energy Economics (IAEE) student award for the year 2001. Presently she coordinates the activities of AEI. At TERI she is working on energy security, climate change and trade and environmental issues.

x

Contributors

Ravi B. Grover is a nuclear engineer and is concurrently working as Director, Homi Bhabha National Institute (HBNI), Director, Strategic Planning Group (SPG), Department of Atomic Energy (DAE), and Director, Knowledge Management Group, Bhabha Atomic Research Centre (BARC), DAE, India. Grover is a Fellow of the Indian National Academy of Engineering. He studied mechanical engineering at Delhi College of Engineering, nuclear engineering at BARC Training School and received a Ph.D from the Indian Institute of Science, Bangalore. Eshita Gupta has been working as a Research Associate at The Energy and Resources Institute, TERI, India since February 2006. She is an economist with a postgraduate degree in economics from Delhi School of Economics. She has a number of publications in refereed journals and proceedings of international and national conferences. She has worked extensively in the areas of energy, with a major focus being work related to energy-security indicators, energy-market risks and energy-access issues. Commander Gurpreet Singh Khurana was commissioned into the Indian Navy in 1988 and is a Missile Warfare specialist. Before joining IDSA as Research Fellow in 2003, he commissioned the Fast Attack Craft INS Tarmugli at Port Blair as its first Commanding Officer. His research interests include maritime security, strategic and defence issues. He has authored more than 25 journal papers and made presentations at many international maritime conferences in India and abroad. He is the author of Maritime Forces in Pursuit of National Security: Policy Imperatives for India (2008) published by IDSA and Shipra Publications. He is presently involved in a study of China’s maritime strategy and naval modernization. Sudha Mahalingam is currently Member, Petroleum and Natural Gas Regulatory Board of India. She is also a member of India’s National Security Advisory Board, advising the Prime Minister on security-related issues. In 2007, Sudha Mahalingam was awarded the first K Subrahmanyam award for Excellence in Strategic Studies. Prior to her current assignments, she held the prestigious Nehru Fellowship at Nehru Memorial Museum and Library. An economist and lawyer by training, she specializes in reforms and energy security. Her focus areas are energy regulation, tariff setting and the geopolitics of energy security. Deepti Mahajan is Research Associate at The Energy and Resources Institute, New Delhi. Here she is part of the Centre for Research on Energy Security. She has a graduate degree in International Relations from the University of Nottingham, UK, and an undergraduate degree in Journalism from Lady Shri Ram College, University of Delhi. She was earlier with Women in Security, Conflict Management and Peace (WISCOMP), New Delhi, where she worked on multi-track diplomacy, and issues at the interface of gender, security and peace building. Ajay Mathur is Director General of the Bureau of Energy Efficiency, Government of India, and a Member of the Prime Minister’s Council on Climate Change. As Director General of BEE, he coordinates national programmes and policies

Contributors xi to enhance end-use energy efficiency in the country. Prior to joining the Bureau, he was President of Suzlon Energy Limited; and has headed the World Bank Climate Change Team in Washington, as well as the Energy Technology Division of TERI in New Delhi. Dr Mathur received his Ph.D from the University of Illinois. Dr Mathur is the co-author of three books, including the IPCC Special Report on Technology Transfer. C. Raja Mohan is currently a Professor at the S Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Raja Mohan was the Strategic Affairs Editor of the Indian Express in New Delhi, and the Diplomatic Editor and Washington Correspondent of The Hindu. He has a Masters degree in Nuclear Physics and a Ph.D in international relations. He was a member of India’s National Security Advisory Board during 1998–2000 and 2004–06. His recent books include Crossing the Rubicon: The Shaping of India’s New Foreign Policy (New York: Palgrave, 2004) and Impossible Allies: Nuclear India, United States and the Global Order (New Delhi: India Research Press, 2006). Nitya Nanda is a Fellow with the Centre for Global Agreements, Legislations and Trade at The Energy and Resources Institute (TERI), New Delhi. He has published several articles and papers on issues of trade, investment and competition, in professional journals, edited volumes and newspapers. His recent work includes Expanding Frontiers of Global Trade Rules: The Political Economy Dynamics of the International Trading System, published in 2008 by Routledge, London. Ligia Noronha is a Senior Fellow and Director of the Resources and Global Security Division of The Energy and Resources Institute (TERI), New Delhi, India. She has been Secretary of the Asian Energy Institute since 2005 and coordinator of REEEP South Asia. She has a Ph.D from the London School of Economics. She is a member of the GOI’s Expert Committee on Climate Change, is on the External Review Committee for Shell International’s Sustainability Reporting and on the Task Force (natural resources, environment, land and agriculture) of the Commission on Centre State Relations of the Government of India. M. V. Ramana, a physicist by training, is currently Senior Fellow, Centre for Interdisciplinary Studies in Environment and Development (CISED) at the Institute for Social and Economic Change, Bangalore. He obtained his Ph.D from Boston University, USA. Over the last few years he has been studying the Indian nuclear energy programme, focusing on economics, safety, and environmental impacts. He is co-editor of Prisoners of the Nuclear Dream (New Delhi: Orient Longman, 2003). Surya Sethi is Principal Advisor (Energy) to the Planning Commission, Government of India, and part of India’s negotiating team on climate change at the UNFCCC. He has worked in some 30 countries worldwide in the field of infrastructure, capital markets and industrial enterprises across a variety of sectors. Most recently, as Chief Investment Officer at the International Finance

xii Contributors Corporation (IFC) Mr Sethi’s Energy Portfolio included power, hydrocarbons, energy efficiency, renewables and climate change initiatives. J. Y. Suchitra has a Masters in Economics from the University of Hyderabad and has been examining the economics of nuclear power for four years. She is at the Institute for Social and Economic Change, Bangalore. Anant Sudarshan is a Ph.D student in the Management Science and Engineering department at Stanford University and a visiting Research Associate at the Centre for Research on Energy Security at The Energy and Resources Institute. He holds degrees in mechanical engineering from the Indian Institute of Technology, Delhi and Stanford University. His present research focuses on the economics of energy and environment policies.

Foreword

The issue of India’s energy security is not a new subject – it has been discussed ever since the first oil price shock took place in 1973–74. The Indian economy at that time was in a precarious condition, and therefore the quadrupling of oil prices led to inflation in double digits and, at some stage, inflation rose to well over 20 percent. The political fallout of those developments proved to be terribly expensive, and one could even say that Ms Indira Gandhi’s imposition of emergency in 1975 was in some ways the outcome of what happened in the energy sector over the 1973–74 period. This historical fact only establishes the reality that the concept of energy security is very much part of a larger socio-economic and political construct. Currently, the Indian economy is in a fairly strong position, and therefore the spike in oil prices that has taken place in recent months has not in any way destabilized the economic progress of the country, even though growth is expected to be lower this year than in the previous three. Dependence on specific sources of energy is a function of access to different forms of energy, their prices and the stock of capital which may constrain substitution between one form and the other. For instance, the Indian Railways having gone in for large-scale use of diesel locomotives cannot in a short period of time switch over to, say, electricity that would be based on an indigenous source of energy – coal. Similarly, given the problems associated with inadequate and unreliable supply of electric power, the country has seen a proliferation of captive power generating units, which are heavily dependent on the use of diesel oil. The recent increase in automobiles and their extensive usage has also led to an increase in consumption of oil. With the capital stock existing and the inertia in the system, India’s dependence on oil would continue to grow in the foreseeable future. This would certainly raise questions relating to the country’s energy security in several respects. Firstly, upward fluctuations in oil prices could prove disruptive to steady economic progress. Also, if on the basis of geopolitical changes the physical supply of oil were to be disrupted for a short period of time, the reserves of oil available in the country at any point of time would not be enough to withstand disruptions in oil-dependent activities. Finally, with growing imports and high oil prices, increasing consumption could prove to be an unbearable burden for the Indian economy, which may result in lower economic growth and loss of welfare. One particular dimension of energy security which does not receive the attention

xiv

Foreward

it deserves is the issue of energy security for the poor sections of society in India. This is a subject that is of relevance not only to India, but to several other developing countries as well. There are today about 2.5 billion people in the world who are still dependent on the use of biomass energy. At the same time there are 1.6 billion people who have no access to electricity. For people who do not have a proper energy supply for cooking, and, therefore, have to depend on poor quality biomass, energy security takes on a very different dimension than what would be experienced in the modern sectors of the economy. As yet the global community has not found satisfactory answers to this largescale problem. Some limited efforts have been made, such as supply of LPG at highly subsidized prices to the population in some of the mountain states of India. This has proved very effective in providing a clean and modern fuel for cooking in some of these regions and has also helped arrest deforestation, which took place earlier in these locations for supply of fuel-wood. In respect of lack of access to electricity, at least the basic needs of people in rural areas for lighting can be taken care of through the promotion of solar lanterns and solar torches, which is exactly what TERI is attempting to do in its campaign for Lighting a Billion Lives (LaBL). But the task at hand is gigantic and the resources available have made the energy security objective of poor populations across the world clearly insurmountable under current conditions. This dimension of energy security has been covered in the book, but clearly much greater work is justified if this challenge is to be met on a large scale in different parts of the world. In my view, this book would be of great value for policymakers and citizens of the world who now need to ponder the direction of developments in the supply and use of energy, where changes are due to take place for various reasons, but most importantly also as a response to the problem of climate change. If any sectors in any economic system are likely to undergo major changes because of climate change, it is those involved in the supply and use of energy. The drive to ensure secure supply of energy would be a major factor in this change. R. K. Pachauri Director-General, The Energy and Resources Institute (TERI) Chairman, Intergovernmental Panel on Climate Change (IPCC) September 2008

Preface

This volume originated in a conference on India’s Energy Security: Foreign, Trade, and Security Policy Contexts organized by TERI, and the KonradAdenauer-Stiftung, New Delhi on 29–30 September 2006. Given the growing concerns on the energy front, it was felt that there was a need to understand the factors that could enhance India’s energy insecurity, to explore various dimensions of energy security in relation to India, and to examine the role, if any, that trade, foreign policy and overall security measures policy should play in enhancing it. The Conference had both Indian and foreign participants from Germany, Japan and China. The contents of the book, however, go beyond that conference. We include some of the papers from that conference that focussed on India, revised and updated, and we add new material in order to ensure that the debate reflects a concern not just with the external dimensions and security of supply issues, but more frontally with issues of energy access, increasing energy consumption of certain groups, the provision of clean energy and available technologies, and the environmental sustainability of energy choices. The purpose of this book is therefore to bring together a set of opinions and analysis, from experts and policymakers, with a view to crystallizing the assessment of challenges and opportunities before the nation on a subject that will remain central for some time to come. India’s energy concerns are really in the midst of a perfect storm: growing import dependency and rising prices of the fuels that the country needs to import; the complex geopolitics around energy supply sources and the growing pressures of the global community to make emerging economies, including India, accept commitments to limit the emissions of greenhouse gases. In many ways, these forces should create a movement away from current energy paths. But such change cannot come easily, and India is locked into a path dependency that will require it to engage actively with long standing compulsions of domestic energy pricing, technology choices, institutions and perceptions. The key objective of this volume then is to highlight the internal and external dimensions of India’s energy security scenario, the choices it is consciously making, and the room to manoeuvre that it possesses in which to address these concerns. We are very grateful to the Konrad-Adenauer-Stiftung for its financial support for the 2006 conference, particularly to Jörg Wolff, its Resident Representative at New Delhi. We would also like to thank him and the Foundation for permission to

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Preface

use some of the material that has appeared in an earlier summary of the conference proceedings. Some of the material in this volume draws from research being done under the project ‘Building an Energy Secure Future for India’ supported by the Nand and Jeet Khemka Foundation and we would like to thank them for their financial support. We thank the Director General of TERI, R K Pachauri, for his guidance on energy security policy issues and support with this project. Dorothea Schaefter, Associate Editor, Asian Studies, Routledge, has been very supportive of this book project, and this volume would not have taken shape but for her encouragement. We would like to acknowledge her role in this. Our thanks to Kate Moriarty for copyediting the manuscript and to Saroj Nair who helped with formatting the manuscript and other formalities. And last, and most importantly, to the contributors who attended the conference in 2006 and have since revised their papers despite their many other very pressing commitments, and to the new authors for their contributions that have together shaped this volume. Ligia Noronha Anant Sudarshan

Part I

Understanding India’s energy security concerns

1

Contextualizing India’s energy security1 Anant Sudarshan and Ligia Noronha

In the last couple of decades, energy-related policy challenges have grown increasingly prominent in India. On the back of a number of driving factors, (population growth, economic growth and lifestyle changes, among others) energy consumption has risen and its concomitant concerns have grown steadily. The forces that have shaped the development of the Indian state and the Indian economy over the last two decades, and that have led to the recent years of high growth, have also changed the paradigms within which energy policy decisions are taken. There are two overarching forces influencing the country’s energy policy decisions and creating the challenges confronting policy makers. These are energy and growth concerns and energy and poverty concerns. The first set of problems includes the need to supply enough commercial energy to drive growth, tackle unsustainable consumption, and improve our ability to cope with high energy prices. The second set of forces arises from the pressures generated due to large energy inequities, the need to manage the transition from traditional fuel sources to cleaner fuels, and the provision of lifeline energy required to eliminate poverty and provide a basic minimum standard of living to all citizens. This duality of challenges that is before large developing nations such as India contrasts sharply with the situation in both developed countries, and the least developed nations. India’s large and growing middle class2 has energy-related concerns that bear a much closer relationship to those in the developed nations than to those of the very poor. At the same time, the majority of the country’s population remains poor and predominantly rural, with no access to clean and modern energy, and little ability to pay for such. The spread of issues arising from energy and growth concerns spans both internal and external dimensions of national policymaking. Arising out of the need to spur economic growth is the task of increasing domestic production of different fuels, and of dealing with environmental challenges – both local and global. There is also the challenge of walking the geopolitical tightrope that an increasingly import-dependent India finds itself on. There are perceptions of high risk, fuelled by growing dependence on oil imports and high oil prices. The heavily politicized nature of the international oil trade also adds to risk. In recent years geopolitics has become a central concern in energy trade, characterized by a rising resource nationalism; the concerns of an increasingly volatile West Asia; the responses that

4

A. Sudarshan and L. Noronha

India’s emerging energy ties create among countries of the West; and potential threats to energy infrastructure and transit routes. Energy issues are becoming the lens through which many foreign and trade policy initiatives are being viewed, and part of the language of new diplomacy. On the environmental side, concerns about fossil fuel use have been tightly linked with climate change and international pressures for a cleaner energy path. India’s room to manoeuvre is thus increasingly being framed by these developments (Noronha 2007). Yet alongside the concerns we have just mentioned (which in many ways are just as important for developed nations), there is a different set of challenges specifically posed by energy poverty. Energy access is a huge problem in rural India, where traditional biomass fuels still dominate the energy mix. The 55th round of the National Sample Survey of India (1999–2000) found that 86 per cent of rural households continued to use biomass in the form of dung cakes, firewood or wood chips for cooking. Even today only 5 per cent of rural households use LPG, and only about 43 per cent are electrified (TERI 2005). While the penetration of modern energy sources was greater in urban households, over 20 per cent continued to rely on firewood and wood chips, and fewer than half used LPG for cooking. The total contribution of traditional fuels to the primary energy mix remains very significant (Figure 1.1). The presence of energy inequities in India also leads to the question of how to manage the transition from biomass to electricity and cleaner fuels (probably fossil fuels). Such a transition, given India’s vast rural population, poses a major challenge from the point of view of ensuring supplies.

Figure 1.1 India’s primary energy supply 2003–04 (in EJ). (Source: Integrated Energy Policy Report (Planning Commission, 2006a.))

Contextualizing India’s energy security 5 In this context, it is unsurprising that a number of energy-related concerns have arisen, for Indian people and policymakers. The term ‘energy security’ has become increasingly common, and defining an energy policy for India that takes us towards an ‘energy secure’ future has become an important goal today. Yet, for such an oft-used phrase, energy security has a somewhat ambiguous meaning. The sense in which the term is used has changed with time and so has its meaning in different parts of the world.

The concept of energy security In April 1912, as Germany and Britain prepared to go to war, Winston Churchill – then the First Lord of the Admiralty – made the decision to switch the fuel used by the British Navy, from coal to oil. In doing so, he sought a crucial edge on the naval front, yet simultaneously committed the national security of Great Britain to oil supplies from Iran instead of coal from Wales. The company supplying oil to Britain – then called Anglo-Iranian oil and later becoming British Petroleum – became the object of investments by the British government and the rationale for an increased British military presence in the Persian Gulf. The idea that energy policy, foreign policy and national security are all linked is therefore not new. Over the years however, conceptions of ‘energy security’ have evolved and grown rather more complicated. After the oil crisis of the 70s, as prices rose and a scarcity of affordable supplies became a real and pressing concern for countries in different parts of the world, ensuring energy supplies became a constant concern for all governments. Since then, energy security has been seen primarily as a problem of supplies and costs. In 1999, the United Nations defined energy security as requiring ‘the continuous availability of energy in various forms and in sufficient quantities at reasonable prices’. Other organizations such as the Energy Information Administration of the US Department of Energy and the World Coal Institute use similar, supply centric definitions of energy security3. Along with an emphasis on supplies and costs, have come debates on issues such as the geopolitics of energy, the links between energy and foreign policy, maritime safety of energy supplies, play-offs between strategic energy investments and the development of free global energy markets, the nationalization of energy resources and the value of increased energy self sufficiency. While all of these issues are certainly important, it has become increasingly clear in the last ten years that they provide only part of the picture. If the ‘security’ in ‘energy security’ is understood in the context of protection from energy-related threats, then the issues relevant to ‘energy security’ suddenly appear much broader. One way to understand this is to look at threats due to energy use as falling into the two categories mentioned above – those affecting economic growth and those that are unique to conditions of poverty. The traditional threats that form a part of energy security definitions – supply constraints, costs, import dependency, geopolitical tensions – all of these may be called energy and growth threats because they directly affect economic growth and the normal functioning of the economy. Other problems such as energy inequity, and the use of dirty, traditional

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biomass fuels with their associated health risks, could be treated as energy poverty threats. Added to these challenges is the very major threat posed by global climate change. It is increasingly becoming clear that climate change is not only real and in large part caused by our dependence on fossil fuels (IPCC 2007a), but that its consequences will also pose a serious development challenge, particularly to the more vulnerable developing world (IPCC 2007b). It is still the case that energy security and climate change are normally regarded as distinct, sometimes competing, objectives. In recent years however the world has moved towards the realization that policies that focus on only one of those two aspects are probably doomed to being severely suboptimal. As such (and in line with the idea that energy security is best approached by first asking what the causes of insecurity are), it makes sense to speak of environmental threats as energy security threats. Not to do so is to miss the central fact that nations can have only one energy policy, and we might as well look to identify what is optimal across multiple attributes, rather than create separate policy goals (in this case ‘reducing GHG emissions’ and increasing ‘energy security’) that often conflict with each other. It is in this context that India’s 2006 Integrated Energy Policy report defines energy security as follows: The country is energy secure when we can supply lifeline energy to all our citizens as well as meet their effective demand for safe and convenient energy to satisfy various needs at affordable costs at all times with a prescribed confidence level considering shocks and disruptions that can be reasonably expected. (Planning Commission, 2006a) This definition includes within it key aspects of energy security: those related to poverty and those related to growth. It may therefore be adopted as a reasonable definition for India with the understanding that the word ‘costs’ needs to be read as referring to not just monetary costs, but also externalities such as local and global environmental costs. This understanding of energy security as being a broad concept is useful for researchers and policy analysts seeking to appreciate developing country priorities and energy policy decisions. For a country such as India for example, it is necessary to assess the marginal benefits involved in addressing any particular aspect of this broad definition and the opportunity costs involved in placing an alternative issue on the backburner. For example, addressing the issue of climate change must be played off against the need to tackle other threats – low energy access, poverty and disease (alleviating which requires development and increasing energy use), insufficient access to modern technology and consumer products (implying the need for industrialization) and so on. In some situations it might be felt that the marginal benefits from growth, energy access, cost reductions or mitigating local socio-environmental damages might dominate those obtained from addressing a climate change concern. In other cases, the reverse might be true. These kinds of tradeoffs should be the central concern of policymakers looking to create an

Contextualizing India’s energy security 7 energy secure policy for India. In addition, for energy policy analysts both within and outside the country, appreciating the existence of these tradeoffs and the fact that priorities will necessarily differ for the developed and developing world, is essential to evaluating the current situation and suggesting the measures most urgently needed.

Drivers of energy concerns in India The last two decades have been, for India, a time of change and growth along many dimensions (Table 1.1). Many, if not all, of the changes have strongly affected our energy needs and certainly contributed to energy security concerns. Economic changes have probably received the most attention – both economic growth rates as well as structural shifts in the economy. Yet there have been other important drivers of change. These include demographic effects – population growth, urbanization, changing kinship structures and the demographic transition. There have also been strong increases in energy demand from the transport sector – linked to growing ownership of private vehicles and increasing travel distances. Finally, domestic energy use has seen a slow transition from traditional, biomass energy to commercial fuels. Managing this transition is likely going to be one of the country’s greater challenges in the medium term. There are also a number of external factors that contribute today to energy insecurity in India. These include high risk perceptions, fuelled by the extent of energy imports, the price of fuels in the world market, and geopolitical realities. Taken together, these factors influence perceptions of space in an international context and the urgency with which foreign dependence is sought to be reduced. The factors highlighted in Table 1.1 have played and continue to play a large part in India’s growing energy security concerns. Much can be said about each of these, but we will turn at this stage to an examination of the constraints that have held back the formulation of effective policy responses to these and other problems. Our primary concern is that India is currently heavily ‘fossil fuel’ or ‘carbon’ dependent, seemingly committed to a ‘traditional’ path of development and energy use. Figure 1.1 illustrates this quite starkly. Virtually the entire primary energy mix is carbon based and, except for the significant share of energy that still comes from traditional biomass fuels, the remainder is almost entirely from coal, oil and natural gas. Of greater concern than the country’s current energy use patterns though, is its projected energy use. Not only are the fossil fuels likely to remain important in the commercial energy mix, but also, as traditional biomass use declines, the demand for electricity and fuels such as LPG will rise sharply in the residential sector. A number of energy models exist that seek to project future energy use, including those in the National Energy Map report (TERI 2006) and the Integrated Energy Policy report (Planning Commission, 2006a). While different models and projections have differed in their details, there seems to be uniform agreement among energy analysts that India’s future in the next three to five decades is inextricably linked to high fossil fuel use. As an example, the Integrated Energy Policy report

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Table 1.1 Factors aggravating the rise of energy security concerns in India Factors increasing energy demand

As indicated by

Economic growth

Annual growth in real national income in India at a rate of 6 to 7%. Economic growth of over 6 % in the last decade and future targeted growth rates of 8 to 10% (Planning Commission, 2006b).

Changes in the nature Economic reforms post 1991, accompanied by structural of the economy shifts away from agriculture and towards the services sector. Strong demand for infrastructure, housing, retail, media and entertainment services and IT. Demographic factors

Annual rate of population increase of about 1.9% p.a. over the last two decades. Percentage of urban population is projected to rise from 25.5% in 1990 to over 40% by 2030 (United Nations, 2006). Changing kinship structures with smaller households.

Growing transport sector

Demand for petrol and diesel between 1980–81 and 2003–04 grew 7.4% and 5.7% p.a. respectively (Integrated Energy Policy, 2006). Rising share of road haulage in freight transport and rapid increases in personal vehicle ownership. Nearly 50% of oil demand comes from the transport sector (a share set to grow).

Incomplete energy transition

Biomass still the major cooking fuel in rural India, and less than 50% of rural households are currently electrified. In 2003–04 the domestic sector accounted for 25% of total electricity consumption, a share that is rising as fuel choices change.

Supply side pressures India has 17% of the world’s population, but only 0.8% of known oil and gas resources. Environmental concerns, inaccuracies in reserve estimates and coal quality concerns have led to constraints on domestic coal use, leading to rising import dependencies for all the fossil fuels. External security Crude oil import dependency is projected to rise from 35% in concerns 2001 to 78% by 2031 (TERI 2006). Imports of natural gas and coal are also expected to grow. India has been heavily dependent on West Asia for its oil and gas needs. More recently the focus of attention has shifted to sourcing from Africa. The growing oil import bill, as well as the projected increased dependency on imports for coal, oil and gas, is creating pressures for change in the way India engages energy-rich countries.

projects a maximum share of 4.5 per cent for renewable sources of energy, even if the country succeeds in developing 100,000 MW of renewable capacity over the next 25 years (which is estimated as an upper-bound on the feasible potential). Similarly, Figure 1.2 is a projection of India’s commercial energy demand in a business-as-usual scenario and it illustrates both a sharp increase in expected energy demand, as well as a continuing dependence on fossil fuels. Evidently there are serious concerns about both the environmental sustainability of this path and the degree of security it can provide in an energy stressed world. Therefore, for India to address energy security concerns, the country must

Contextualizing India’s energy security 9

Figure 1.2 Rising commercial energy consumption in a BAU scenario. (Source: National Energy Map for India: Technology Vision 2030 (TERI 2006.))

understand and tackle the underlying causes of this path dependence internally, while navigating the opportunities and risks that exist externally. To make our position on path dependence clear we quote here from North (2006): Path dependence is not ‘inertia’ rather it is the constraints on the choice set in the present that are derived from historical experiences in the past. Understanding the process of change entails confronting the nature of path dependence in order to determine the nature of the limits of change that it imposes in various settings. Following North, we suggest that to understand what it would take to bring about change in India’s energy sector, we need to focus on the sources of this path dependence.4 We suggest that there are four key sources of path dependence in India’s energy sector: beliefs and perceptions, institutions and organizations, technology, and relative prices. Beliefs and perceptions are key to ordering mindsets and influencing choices. In the energy context, the beliefs that are important are those that relate to perceptions of resource availability, to what constitutes energy security, to the external ‘symbols’ of prosperity. If for example, both from the point of view of the state, as well as the consumer, energy security is perceived to be only a problem of supplying a minimal amount of energy, and of avoiding shocks and disruptions in that supply; then large parts of rural India are in fact reasonably secure as they are dependent on non-commercial biomass. If energy security is linked to the quality of the fuel

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and to related health implications of indoor air pollution, then this perception of security will change. Whose perceptions matter and how these get translated into policy are a consequence of the institutional and political–economic structure of the society (North 2006). Institutions refer to formal rules, informal norms or constraints and enforcement characteristics. These are the rules of the game. How they are actually played out depends on organizations. These are groups of individuals bound by a common purpose to achieve objectives. They can range from the political, to the social, economic and educational. Organizations often depend for their survival on the non-alteration of rules and so exert pressures to avoid such changes. They may also play on perceptions and beliefs to strengthen the perpetuation of the system. The constraints to change from path dependence because of them are summed up well by North: Institutions that have accumulated give rise to organizations whose survival depends on the perpetuation of those instutions and which hence will devote resources to preventing any alteration that threatens their survival. (North 2006, 51–52) In order to be energy secure we thus need to examine the institutions that we have in place and to ensure a more flexible institutional matrix that will adjust and adapt to evolving economic, political, technological and demographic changes as well as shocks to the system. As far as technology is concerned, its creation, standardization, justification, deployment, modification, pricing, and promotion will determine its development, diffusion, and use (Dholakia et al. 1992). The availability of technology, learning capacities within a country, the quality of indigenous research and the funding of research and innovation efforts are all factors determining the viability of individual energy options. The context of energy technology choice making is key to understanding path dependence and performance, and the scope for change to alternative technology paths. Relative prices of different fuels and incentives of various kinds are key determinants of individual choices. In the energy context, different subsidies and the non-inclusion of environmental externalities in pricing, have often led to choices being weighted heavily in favour of fossil fuel use. We suggest that a movement away from the present pattern of energy use is constrained by a combination of these four sources of internal path dependency. To illustrate our argument we take up a few examples from the Indian energy situation – the continued dominance of coal in the power sector and of oil in the transport sector. The purpose of highlighting the forces that keep us fossil fuel centric, and some of the problems with our choices, is not necessarily to conclude that our current path is all wrong. Rather, it is to make the point that there has been an implicit acceptance of a state of affairs that needs to be questioned so that a more integrated policy may emerge. It is also to underline the fact that we need to think of alternatives to the current path for the long term.

Contextualizing India’s energy security 11 Coal in the power sector India’s energy system has consistently been built around the heavy utilization of coal. Between 1996 and 2006, India’s coal consumption rose from 154.4 million tonnes of oil equivalent (mtoe) to over 237.7 mtoe, recording an overall growth rate of about 54 per cent (BP Stats 2007). Today, thermal plants running on coal provide for 60 per cent of India’s power generating capacity. The 2006 Integrated Energy Policy Report makes a number of recommendations, the first of which reads: ‘Coal Shall Remain India’s Primary Energy Source till 2031–32, Current shortages are a concern.’ In that context, it is interesting to understand not only how and why we have made this choice, but also what forms the basis of the underlying trend towards continuing in this vein. In light of concerns about global climate change and the possibility that India may have to take on some emission control obligations in the near future, a high dependence on coal may well prove something of a curse. Technology At the time of independence, India’s total power generation capacity was 1,500 MW, mostly consisting of small hydro and high-grade lumpy–coal-fired thermal stations. The hydro: thermal generation mix was almost 50:50. Since India was, at the time, in a nation building phase, generation of electricity to nurture new industrial growth was the main task before the nation. For a poor country, the technology to use coal-fired thermal power plants was available easily, as were highly labour intensive processes for extracting coal through underground mining. Thus coal became a natural starter along with hydroelectric power. The pre-existing availability of a railway network for transport and a minimal amount of specialized requirements for transport was another initial advantage for the fuel. After nationalization, increased production requirements for coal could be met quickly by larger and larger opencast mines. Unfortunately the evolution of technology in use in India has slowed down considerably. Even today, underground mining is inefficient and labour intensive and most thermal power plants use older, subcritical technology. The bulk of domestic coal comes from opencast mines and production increases are still driven by greater opencast mining (with little or no recovery of land afterwards) and over exploitation of existing mines. These technologies and processes are characterized by low present costs and quick increases in immediate production. They come at the cost of more sustainable methods (including efficient underground mining and land reclamation), and pose barriers to the technology learning and adaptation that need to take place before better mining technology can be adopted. India’s experience with long-wall underground mining technology has been poor, largely due to a lack of skilled manpower, insufficient technical expertise, and the lack of research needed to adapt technologies from other countries to Indian conditions. In the long run, as we over-exploit shallow coal deposits, efficient and mechanized underground mining will become necessary. Unfortunately our continued reliance on short-term, sub-optimal technology today makes this transition rather difficult.

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Relative prices Until the 1980s, more coal was produced in labour intensive underground mines than in opencast mines. In the initial years, low wages helped keep coal production costs low, and in doing so helped make coal the mainstay of India’s commercial energy generation. As the share of opencast mining increased, economies of scale again allowed coal costs to be competitive against other fuels. The presence of domestic reserves of coal remained a huge advantage – especially for a country short of foreign exchange. Coal can be extremely economical for use in pithead power plants, linked for short distances by rail. That said, because of the presence of heavy cross subsidies in rail transport, an archaic method of coal pricing based on useful heat value grades, and the fact that even today coal producers cannot really set prices free of government interference, it has been very difficult to assess the true costs of domestic coal compared with alternatives, including natural gas and imported coal. In effect, in the absence of proper markets, the status quo of coal dominance has proved difficult to change. Beliefs and perceptions Possibly the single most important reason underlying India’s increasing reliance on coal over the last three decades, and its comparative neglect of other options, has been the idea that the indigenous reserves of coal in India are vast – plentiful enough to sustain the nation’s need for hundreds of years. Even today, this impression has not entirely disappeared, both nationally and internationally. A normally authoritative source such as the BP Statistical Review of World Energy 2007 still listed India’s proven reserves to production ratio as standing at a staggering 207 years. To a large extent the root of the ambiguity over the extent of India’s mineable coal reserves stems from the fact that coal resources in India have been inventoried by the Geological Survey of India (GSI) on the basis of a geological classification system5. No comprehensive inventory has been carried out on the basis of the United Nations Framework Classification. As a consequence the exact amount of extractable coal in India is still difficult to ascertain. Various rules of thumb have recently been used to determine how much mineable coal India has, and the newest figures, such as those in the 2006 Integrated Energy Policy report, suggest that the figure could be as low as 45 years of coal at five per cent rates of production growth. Even this figure is likely to be an overestimate, since it includes sterilized coal, inaccessible coal, and some already exploited reserves. Whatever the real figure, it is clear that coal is far scarcer in India than many people imagined for a long time. The harm this has done to India’s energy policy over the years has been significant. The comfortable, opiating belief of possessing huge quantities of coal has contributed to a stagnation of energy policy initiatives and an insufficient investment in research and infrastructure that might have aided the use of alternatives such as natural gas or distributed renewables. Consequently today, not only is coal firmly entrenched as the primary fuel source in India, but alternatives are not really feasible immediately. This in turn means that new capacity increases must again

Contextualizing India’s energy security 13 be largely based on coal. This is important because power plants have a lifetime of about 30 years. Fuel choices today are decisions that have long-term implications. Thus choices made yesterday constrained us to a particular pattern for years; and decisions made today will continue to do the same into the future. Institutional characteristics Institutions and organizations play a major role in determining the course of government policy – both on paper and in practice. The coal industry was nationalized in India between 1971 and 1973 when first coking coal and then other coal mines were placed in the public sector. The reasons cited were that private operators were corrupt, engaging in slaughter mining, not willing to modernize, unable to increase coal production to meet national demand and were not meeting norms relating to working conditions. Unfortunately, today both coal production and the major consumption sector (power generation) are in the public sector. Coal production is a virtual monopoly, dominated by Coal India Limited (CIL) – a public sector behemoth with over 450,000 employees. As a result, the coal lobby in India is extremely powerful and any reforms that could force competition, reduce the importance of CIL, or change labour laws, have faced powerful opposition. A flourishing coal mafia and corruption have been difficult to remove in this situation and the status quo has consequently been maintained. Even the normal pressures from consumers that would exist in a market have been muted since both the largest consumer and the producer are state controlled. Thus reforms in other energy sectors have not spread to the same extent to the coal sector; competition and private participation remains miniscule; and best practices have not been adopted. Cleaning the Augean stables of the coal sector is therefore a prerequisite to actually achieving change on the ground. Unfortunately this is easier said than done when much of the change, and many of the recommendations needed, must come from the incumbent organizations. Oil use in the transport sector The demand for oil in India is almost entirely driven by the transport sector. Indeed, TERI projections (TERI 2006) show that, for a reference case scenario, the share of the transport sector in total petroleum product consumption increases from 36 per cent in 2001 to 64 per cent in 2031. It is clear therefore, that a business-asusual approach to the transport sector has extremely worrying implications for the nation’s future oil bill. Technology Unlike many other sectors consuming energy, the transport sector is characterized by very little flexibility when it comes to fuel choice. This is not a problem unique to India. The world over, high oil prices contribute first and foremost to increased costs of transportation. Highly fuel-efficient options such as hybrids are

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only now beginning to appear on the roads and are significantly more expensive than conventional IC engines. Similarly biofuels and fuel cell vehicles remain at a research and prototyping stage and are years from large-scale production. The technologies that drive our automobiles, ships and aircraft are well developed, mature and have proven both versatile and reliable. Unfortunately this has reduced investment in alternative engine technology that is less oil intensive, and correspondingly it is difficult and expensive to reduce our consumption of hydrocarbons for transport today. India also suffers from the adverse consequences of having invested in urban transportation systems that are less than ideal. For example, the country’s rail network remains largely non-electric, with only about 25 per cent of the route under electric traction6. Similarly infrastructure upgrading and technology leapfrogging has not occurred in road transportation – highways remain largely poor quality and insufficiently wide, and trucks and buses continue to use dated and inefficient designs. Thus the system remains serviceable without approaching anywhere near the desired quality and efficiency levels. As is common with many public goods, private investment is low and the state has not compensated – whether through the regulation of technology, the creation of incentives for the private sector or through a direct injection of resources. Ultimately, a dependence on oil as a primary transport fuel is a global problem, having everything to do with the way transportation technologies and the supporting infrastructure has developed. However, it is necessary for India to play a lead role in moving away from this path, particularly since the country’s demand for transport will only increase sharply. It is therefore in India’s best interests to make sure that an atmosphere amenable to technological change is created. Relative prices The pricing of transport fuels and of modes of transportation has had a major role to play in determining the way things look in India today. For example, over the years, road transport has come to cater to more and more freight transport and passenger travel. This is in spite of the fact that rail transport provides significant economies of scale and can be far more easily electrified7. Now, while there are some advantages to road networks, such as greater flexibility and penetration, a large part of the reason for India’s inability to exploit and expand the potential for railways as the preeminent mode of transportation has to do with a host of inefficiencies and biases in pricing. The railways in India have consistently been burdened by social obligations and political agendas. This has led to measures such as cross-subsidization of passenger travel by much more lucrative freight transportation, resulting in a skewed pricing policy. The introduction of unviable lines driven by political whims and fancies, low employee efficiencies, involvement in a large number of non-core activities, and a limited investment in research and development (R&D) has compounded problems. In addition, rail transport covers all costs, including fixed infrastructure costs, in its pricing. On the other hand, road pricing does not reflect the full

Contextualizing India’s energy security 15 normative cost of ground infrastructure and its maintenance. This has adversely affected the market competitiveness of railways. Finally, the presence of diesel and petrol subsidies and the reluctance of the government to allow fuel prices to be set by the market (even after the formal dismantling of the Administered Pricing Mechanism) have dampened the adjustments to demand that would otherwise have accompanied increases in oil prices, and have led to a ‘dieselization’ of the economy. The incentives to moving towards electrified rail transport, as opposed to diesel-based railways or road transport have been significantly reduced. Beliefs and perceptions State and consumer perceptions about public transport, their own entitlements and the best way to improve the system, play a large part in shaping the way the sector has grown. Urban transport provides an excellent example of this. To understand how, it is important first to recognize that the fundamental demand that needs to be addressed is for convenient and affordable mobility. While roads and private vehicles offer one way of obtaining this, there is a general reluctance to think of other ways in which the same ends can be achieved. For example, it is unfortunate that in India transport options such as bicycles, cycle rickshaws and walking are all seen as options only for the poor. Many cities in the world have encouraged choices such as these. Others have treated private vehicles as a luxury and stressed public transport (Singapore being one example). Encouraging alternatives that break away from the current paradigm requires a willingness to tackle the displeasure of the automobile lobby and of car owners. It is possible for the state to implement policies that discourage and make difficult the ownership of cars; require a minimum number of passengers in some areas; make parking costly; and create automobile-free zones. Yet these options have been seen as less than desirable for a number of reasons. First, they place a certain responsibility on the state to provide substitutes – bicycle lanes, excellent public transport and better-designed cities. Second, they are seen as taking away from a fundamental right to enjoy private mobility and are thus restrictive. Changing these attitudes is important because it is only when the full social benefits of public transport are recognized that it will compete on a wide scale with options for private transport. The draft Urban Transport Policy says: ‘In a developing economy, people have an urge to display their higher income status through the ownership of motor vehicles.’ While there is an element of truth to this, it must also be said that consumer needs for private vehicle ownership must take second place to a more general need for mobility – at least where state policy is concerned. This distinction is unfortunately not made often enough and consequently we have an urban transport sector that excludes the poor and continues to grow in an extremely oil-intensive way. Urban transport systems, and, to an extent, freight transport as well, can become classic examples of a tragedy of the commons. For instance, in Delhi, vehicle speeds went from 20–27 kilometres per hour in 1997 to 15 km per hour in 2002. In

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Chennai, the average speed in 2002 was just 13 km per hour. In Kolkata the figure was 7 km per hour (Bidwai 2005). While it might seem to the typical middle-class consumer that his mobility needs are best served by a state that will widen roads, reduce vehicle costs and remove taxes on fuels, in reality such a policy risks spiralling towards a near complete breakdown of the system. Unless this is understood by the state, and communicated to the public, it is hard to see that improvement is likely in the near future. Institutional issues Most cities in India, with the exception of a few such as Chandigarh, have grown in an unplanned fashion. Rapid urbanization has increasingly led to the formation of satellite towns around the large metros and a heavy demand for transport over long distances from workplace to home. In such a situation, well planned and convenient public transport has immense potential. In the absence of such integrated transport systems, there will inevitably be a large increase in private ownership of vehicles. Public transport in the country unfortunately suffers from poor quality and quantity. Most State Transport Undertakings responsible for public transport are not financially viable and suffer from losses. Their tariffs are low and have not kept pace with rising costs. Capital subsidies provided many years ago have now been withdrawn without any reduction in political pressure to keep fares low. Consequently, fleet maintenance and upgrading has suffered immensely. At the same time, the government has failed to provide an environment conducive to private sector participation. In the absence of efficient public transport, private vehicles have come to meet increasing mobility needs. Rising incomes, growing aspirations, liberalization of the auto market and easy financial support have led to a boom in growth of personal vehicles. In turn, this has made the automobile industry an extremely powerful lobby, influencing state policy. The transport sector fulfils a consumer demand that is a prerequisite both for development and economic growth. In many ways, systems dominated by private transport and road transport are a default response to the lack of a well planned and integrated transport policy by the state. It is the failure on the part of the state to recognize how crucial is its role in the growth of oil consumption in transport that has led to the path India has taken. In all fairness, this is a phenomenon that has occurred in other parts of the world as well. Luckily for India, there is certainly enough time to push for a different vision of transport in the future, provided we begin to act today. Before closing this discussion of oil use in the transport sector, it is important to highlight the fact that changes in technology, imposing efficiency standards, switching fuels and setting up better transport systems require strong political will. The changes also require the ability to make alternatives visible quickly so that people can see a coherent plan in place. In the long run, transport policy cannot and should not be determined by factors such as a court order to the government (as in the adoption by Delhi of CNG-based public transport). It is inevitable that

Contextualizing India’s energy security 17 lobbies and some of the stakeholders in the current system will oppose change that hurts them. The inability of the state to evolve consensus or to ignore these pressures is one reason why the transport sector continues to grow along the path of least resistance.

Conclusions The term ‘energy security’ in the context of a country such as India refers to a complex concept and a number of issues. They include poverty, growth, and local and global environmental concerns. Over the course of this chapter, we have attempted to discuss how energy-security debates should be understood where developing countries are concerned, and have stressed the fact that many of the classical definitions of ‘energy security’ refer to a concept more suited to the developed west, than India. In addition, we point out how there are a set of factors driving India’s current energy concerns and that, as these forces play out over the next few decades, the country’s energy challenges will only grow. It is in that light that we believe there is a real need for India to prepare itself to move off its current fossil fuel intensive energy path, which in general is not dissimilar to that followed by the developed world. Unfortunately, in the context of the world today, such a path is very likely unsustainable and increasingly insecure. With this in mind we look to ask why India has struggled to implement change, even where attempts have been made to do so. In order to carry out this analysis we draw upon new institutional economics to put together a framework through which we view two current areas of real concern – the continued dominance of coal as the primary fuel for power generation, and the slow pace of reform in the transportation sector. We show how both these issues can be seen through the lens of four constraints – technology, relative prices, beliefs and perceptions and institutions and organizations. Each of these challenges also forms part of our understanding of energy-security concerns and is directly linked to economic growth and the perception of development, the evolution of lifestyles and the extent to which India feels energy insecure as a nation.

Notes 1 This chapter is a revised version of the paper presented at the TERI-KAF Conference on ‘India’s Energy Security: foreign, trade and security policy contexts’, 29–30 September, 2006. 2 Estimates of the size of the ‘middle class’ vary widely from about 50 to 250 million, depending on context and definitions. 3 The web sites of the EIA and the WCI as accessed on 10 March, 2007 underline the centrality of supply security to the idea of energy security. See http://www.eia.doe.gov/ emeu/security and http://www.worldcoal.org/pages/content/index.asp?PageID=21 4 See North, 2006, chapters 5 and 6. 5 That is, resources are classified as proven, indicated or inferred based on geological considerations and not techno-economic feasibility of extraction. On the other hand, what matters from the point of view of energy policy is the amount of coal that is actually available for economic use.

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6 By the end of the Ninth Plan, as per official Indian Railways statistics. See http://www. indianrailways.gov.in/railway/deptts/rly-elecfn/rly-elecfn.htm for more details. 7 Once electrified, the energy sources needed for transportation can be diversified and the variety of fuels that can be used for power generation come into play. Without electrification, the high energy density and portability of liquid fuels make them extremely difficult to replace.

References Bidwai, P., 2005. ‘Elitist recipe for more chaos.’ Frontline, 22(15), viewed 15 May, 2008 . BP Stats, 2007. BP statistical review of world energy 2000. British Petroleum. Dholakia, N., Bakke, J. and Dholakia, R., 1992. ‘Institutional patterns of information technology diffusion.’ In Belk, Russell, W. and Dholakia, N. (eds). Consumption and marketing: macro dimensions. Boston: PWS-Kent. IPCC, 2007a. ‘Summary for Policymakers.’ In Solomon, S., Qin, D., Manning, M., Chen, Z., Marquis, M., Averyt, K. B., Tignor. M., and Miller, H. L. (eds.) Climate change 2007: the physical science basis, Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge: Cambridge University Press: Cambridge, pp. 2–18. IPCC, 2007b. ‘Summary for policymakers.’ in Climate change 2007: impacts, adaptation and vulnerability, Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, p. 22, viewed 15 May, 2008 . MNES (Ministry of Non-Conventional Energy Sources) 1998, Annual report 1997/98. New Delhi: MNES. NCAER, 1992, Evaluation survey of household biogas plants set up during the Seventh Five Year Plan, Vol. I. New Delhi: National Council for Applied Economic Research. Noronha, M. Ligia, 2007. ‘A India e o Contexto Energetic Internacional.’ Relacoes Internacionais, Septembro., pp. 47–57. North, D., 2006. Understanding the process of economic change, New Delhi: Academic Foundation, p. 6; pp. 51–52. Parikh, J., Pandey, V., and Parikh, K., 2005. ‘Lack of energy, water and sanitation and its impact on rural India.’ In Parikh, Kirit S. and Radhakrishna, R. (eds.), India development report 2004–05. New Delhi: Oxford University Press. Planning Commission, 2006a. Integrated energy policy: report of the Expert Committee. Government of India. Planning Commission, 2006b, Towards faster and more inclusive growth: an approach to the Eleventh Five Year Plan. Government of India. RBI, 2005, Handbook of statistics on Indian economy, Reserve Bank of India. Sridharan, E., 2004. ‘The growth and sectoral composition of India’s middle class: its impact on the politics of economic liberalization.’ India Review, 3(4), pp. 405–428. TERI, 2003. Rural energy matters: the Dhanawas experience. The Energy and Resources Institute, New Delhi: TERI Press. TERI, 2005. TERI energy data directory and yearbook 2004–05. New Delhi: TERI Press, p. 357. TERI, 2006. National energy map for India: technology vision 2030. Prepared for the Office of the Principal Scientific Adviser, Government of India, The Energy and Resources Institute, New Delhi. United Nations, 2006. World urbanization prospects: the 2005 summary (executive summary, fact sheets, data tables), Department of Economic and Social Affairs, United Nations, viewed 15 May, 2008 .

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India’s energy challenges and choices Surya Sethi1

In explaining India, I have often argued that no matter what one says about the country; exactly the opposite is true for a large section of her population. India is often presented as a major economy of the world, growing rapidly and poised to become the world’s third largest economy by 2020. Yet India is also a country with the world’s largest concentration of poor – over 830 million Indians live below the two-dollar-a-day level, with some 370 million of them living in abject poverty on less than a dollar a day. India’s energy scenario also mirrors this reality. India, home to some 17 per cent of humanity, is the fifth largest consumer of fossil fuels in the world with a share of 3.7 per cent of the global commercial energy supplies, yet its per capita commercial energy consumption is only 20 per cent of the world average, 4 per cent that of the United States and about 28 per cent that of China. India faces many challenges in meeting the millennium development goals and raising its human development index. That said, water and energy are easily the two largest challenges in the country’s path to emerging as a middle-income country and, importantly, there is a strong link between these two challenges. Addressing energy, this chapter begins by outlining India’s energy challenge, provides a definition of an energy-secure India, details India’s energy requirements and then outlines India’s energy strategy.

The energy challenge India’s energy challenge is best summarized by the fact that some 600 million Indians live without electricity and over 700 million Indians still use traditional biomass as the primary fuel for the most basic human need, namely cooking. Finally, over 75 per cent of household energy demand results from the essential need for cooking energy. The backbreaking burden and drudgery of providing the energy for cooking through traditional biomass falls squarely on women and the girl child. Similarly, the health impact of burning this biomass is concentrated on these two groups, since they typically spend more time indoors. Lack of a lifeline supply of safe and convenient energy is responsible for most of India’s poor human development indices – either directly or indirectly. Illiteracy, gender inequality, disempowerment, high infant and maternal mortality rates, lack of access to clean drinking water, and poor health indicators can all be traced back

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to the lack of a lifeline level of safe and clean commercial energy for all Indian households. India needs a consistent and inclusive eight per cent + GDP growth over the next twenty-five years to eradicate poverty and meet the millennium development goals. The emphasis on inclusive growth is essential if this aspiration is to be meaningful for all Indians. Raising access to modern commercial fuels is at the very heart of delivering such inclusive growth. However, India must raise access to modern commercial energy in a sustainable manner, because even with a share of just four per cent of global GHG emissions, India is coming under increasing pressure to curb fossil fuel consumption. Thus India must decouple its economic growth from growth in energy consumption while ensuring universal access to lifeline levels of energy consumption. This is India’s energy challenge.

Energy security in the Indian context The World Energy Assessment (UNDP 2000) report defines energy security as the continuous availability of energy in varied forms in sufficient quantities at reasonable prices. This definition does not tell us how much is ‘sufficient’ or by what standard this ‘sufficiency’ should be determined. Further, it misses the concerns of sustainability. In this author’s view, India could be called energy secure only if the following criteria are met. •

• •

The effective energy demand of all sectors for different needs is reliably met with safe, convenient and competitive energy in a sustainable manner. ‘Effective demand’ here means the demand at market-determined prices. Lifeline energy needs of all households are met with clean and safe commercial fuels where necessary, with transparent and targeted subsidies. All forms of available and emerging energy sources and energy technologies are adapted to achieve the first two goals above in a sustainable manner.

Clearly energy security in the Indian context, or the context of the developing world at large, is a complex issue that goes well beyond the typical understanding of energy security, which dwells upon assuring ‘sufficient’ supply at ‘reasonable’ prices. Such a traditional understanding of energy security was relevant only when the currently developed world enjoyed unconstrained growth by depleting the world’s resource endowments and destroying our global commons. Today, however, the developing world cannot hope to get a scarce global resource at ‘reasonable’ prices and the definition of ‘sufficient’ varies with the level of economic development and resulting patterns of production, consumption and lifestyles. The increased use of commercial energy by those who still use more than a ‘sufficient’ requirement simply because they can afford to do so, threatens the very existence of those who never used it in the first place, or used it in insufficient quantities and at unreasonable prices. Thus, in the current context, energy security

India’s energy challenges and choices 21 has strong overtones of equity and implies a moral responsibility towards reversing the historic impact on our global commons.

India's energy needs and threats In 2005–06 India consumed about 513 million tonnes of oil equivalent (mtoe) (21.86 EJ) of primary energy, including some 367 mtoe (15.64 EJ) of commercial energy. The share of non-commercial energy, at about 28 per cent, was second only to India’s most dominant energy resource, namely coal and lignite, which accounted for about 38 per cent of the mix. Oil and gas accounted for 24 per cent and 7 per cent respectively, with hydro and nuclear contributing 2 per cent and 1 per cent of the primary energy mix. The 2006 Integrated Energy Policy report (see Planning Commission 2006) estimated that to sustain a growth of 8 per cent till 2031–32, India’s total primary energy requirement would increase to about 1,536 mtoe in the most energyefficient scenario2. Under the business-as-usual scenario India’s total primary energy requirement would rise to 1,887 mtoe. This estimated requirement translates to an annual growth of 4.3 per cent in energy consumption over the 2003–04 level in the most energy-efficient scenario or an annual growth of 5.1 per cent in energy consumption over the 2003–04 level under the business-as-usual scenario. Should India succeed in meeting its economic growth targets with these estimated levels of growth in energy consumption, India’s energy intensity and its emissions’ intensity will have continued to fall. The energy policy document estimated that the country’s commercial energy requirement would increase more rapidly, at a rate of 5.2 per cent to 6.1 per cent over the 2003–04 level, to range from 1,351 mtoe in the most energy efficient scenario to 1,702 mtoe in the business-as-usual scenario. Thus India could lower its commercial energy requirement by over 20 per cent by following a more energy efficient growth path. India’s import dependence in 2005–06 was about 24 per cent of its total primary energy consumption in 2005–06 and about 33 per cent of its commercial energy consumption in the same year. By 2031–32 India’s import dependence could rise to 28% of its total primary consumption, or 32% of its commercial energy consumption under the most energy-efficient scenario. Under the business-as-usual scenario, India’s import dependence by 2031–32 would rise to 49% of the total primary energy consumption and 54% of the commercial energy consumption. India’s share of the world’s supply of fossil fuels is projected to vary from as low as 3.7 per cent to between 7.6 per cent and 10.9 per cent by 2031–32, depending on whether one considers the most energy-efficient scenario or a business-as-usual scenario. Most importantly, India’s incremental demand for commercial energy could account for 13 per cent of the world’s incremental supply of commercial energy in the most energy-efficient scenario; rising to 21 per cent of the world’s incremental supply of commercial energy in the business-as-usual scenario. Such increases in India’s share of the global commercial energy supply, especially on an incremental basis, will be extremely difficult to realize. Other developing

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countries that have registered high growth rates in the recent past, especially China, have already increased their share of the world’s commercial energy supply and would also attempt to further raise their respective shares of any incremental commercial energy supplies. Given the overall supply constraints established by peaking oil and gas, future energy prices are likely to move northwards and remain there until major alternative sources and technologies come into play. For India, not following the most energy-efficient growth trajectory is simply not an option, if it is to deliver the inclusive growth that we talked about. And yet, even though energy needs have been estimated conservatively and even if India succeeds in delivering the energy efficient growth trajectory, realizing these levels of energy consumption is not going to be easy. The domination of coal and lignite in India’s energy mix will continue and is projected to rise to at least 41 per cent in the most energy-efficient scenario, or 54 per cent in the business-as-usual scenario by 2031–32. In fact, the share of fossil fuels in India’s energy mix would rise from the 69 per cent level in 2005–6 to a range of 74–85 per cent, depending upon the country’s degree of success in adhering to an energy-efficient growth trajectory. Thus, India’s primary energy mix that had remained far less dependent on fossil fuels is likely to resemble the global primary energy mix more closely. Most international forecasts project that the world’s fossil fuel dependence is likely to rise from the 2001 level of 79.5 per cent to 84–85 per cent in 2031–32. It is hard to see a major technological breakthrough to reduce dependence on fossil fuels becoming widespread before 2031–32. Most breakthroughs are projected beyond 2050. The problem for India is getting to 2015, 2020, 2030 and 2050. This author does not believe that current energy prices are too high or as disruptive as they were in the 70s and again in the 80s – a time when the global GDP was much lower than it is today. If we look at oil prices in constant 2003 dollars, the price of oil in the 12-year period from 1974–85 averaged USD54 per barrel. In 1980 the price was USD80 per barrel and it averaged USD72 per barrel during the period 1979–82. If one allows for the depreciation of the dollar and accounts for oil in a basket of currencies and recognizes that the global GDP today exceeds USD55 trillion, the current price of oil and gas does not seem that high. This is especially so when one also considers the supply constraints on conventional oil and gas. For these reasons, this author does not believe that crude oil is going to go below the level of USD85–100 per barrel in 2003 dollars over the next 10 to 15 years. As pointed out above, the real issue is that India needs to grow her energy supplies and the share of world production of fossil fuels in a constrained market, wherein total demand is still rising. Thus availability or access to energy at an ‘affordable’ price is the first threat that India faces in meeting its energy needs. As India, and, indeed, the rest of the world rediscovers coal, which is some 15 times more abundant than oil and gas, the second threat that India faces in meeting her energy needs is the pressure to reduce the country’s incremental contribution to greenhouse gases. The developed world has chosen not to focus on the fact that their own greenhouse gas emissions are still rising in order to maintain

India’s energy challenges and choices 23 unsustainable life styles, instead preferring to emphasize that India’s share of the incremental GHGs is unsustainable. India will therefore have to go the extra mile to make the developed world understand that even under a business-as-usual scenario, India’s per capita energy consumption in 2031–32 is expected to be below that of China’s per capita energy consumption in 2005, about 16 per cent of the 2005 US per capita consumption and about 70 per cent of the 2005 average world per capita consumption. This underscores India’s responsible use of energy even under the business-as-usual scenario. This is the outcome of India’s frugal lifestyles and of energy prices that are the highest in the world in terms of purchasing power parity. If the multilateral community is committed to the eradication of poverty and to delivering the millennium development goals then it must ensure that India gets the modest levels of commercial energy projected to meet her needs in 2031–32. The third major threat to India’s energy security is the lack of a domestic energy infrastructure. As India grows its primary energy supply to the projected levels, it will need to also grow its energy-related infrastructure, such as power generation, transmission and distribution capacity, coal, oil and gas imports, transport and distribution capacity, associated rail, road and port facilities, as well as associated manufacturing, engineering and construction capacities. These supporting capacities need to grow three to eightfold in the next 25 years if energy supply and energy consumption targets are to be met. Having identified the three key threats to India’s energy security, let me address some other threats that are traditionally mentioned but to my mind are of a lower order of relevance to us. If shipping lanes for world energy routes get disrupted, or if political events cause disruptions in sources of supply, many other, more dependent, countries will hurt more than India and are also better placed to resolve such conflicts. Larger concerns at home limit India’s ability to either cause or solve major geopolitical events. India’s strategy can only be to react to, and merely provide for, such eventualities in its energy strategies. Equity oil/gas in Sudan, Nigeria, Kazakhstan or Ecuador is not likely to come to India’s rescue if the world truly faces an energy crunch or if political events disrupt supplies. Equity coal in Australia or Indonesia, which this author has been propagating since 2002, might be far more secure from an energy-security perspective. Suffice it to say that when Exxon-Mobil makes overseas investments in oil or gas, it is not doing so to enhance the energy security of the United States. These are commercial investments and should be seen only as such. India’s oil majors should make such investments primarily in the commercial interest of their shareholders. Such investments promote energy security only to the extent that they help diversify supply sources and promote energy diplomacy. Transnational pipelines add a larger degree of energy security through diversification of energy mix, energy supply infrastructure and supply sources. Pipelines cannot be diverted easily and the source country typically has a vested commercial interest through its ownership interest in the pipeline, and, potentially, in the downstream gas-based facilities.

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Energy alternatives and energy choices Given the fact that no technological breakthrough is being forecast in developing new energy sources by 2031–32, and given that India’s growing energy demand is likely to account for a significant share of any additions to the world’s fossil fuel supply; it is not a matter of choosing which source of energy India should tap. Thus India would need to pursue all possible energy sources and all available and emerging energy technologies that can make the use of fossil fuels more benign in the interim, while seeking technologies that provide potential non-fossil options for the future. Raising supply and demand side efficiency, expanding the use of renewable energy, switching out of coal and oil to gas and, where feasible, clean coal technologies, and greater dependence on nuclear power, are the major options that are currently engaging experts as practical alternatives for delivering sustainable development over the next few decades. Within that context, we look at a few key options for India to focus on in the next few decades. Energy efficiency The foremost ‘supply’ option in India’s energy strategy remains energy efficiency and energy conservation. This acts as a virtual source, as it has the potential of reducing India’s energy need for the same level of economic wellbeing by at least 20 per cent. India’s energy intensity (ratio of total primary energy consumption to GDP in purchasing power parity (PPP) terms) in 2005 was 0.15. This ratio stood at 0.22 for China, 0.21 for the US, and 0.47 for Russia in 2005. India consumes far less energy per unit of GDP than most other countries. India’s current energy intensity of GDP is less than half of what it was in the 70s and, more importantly, the point of inflexion occurred at a GDP level that was well below that at which the developed world started lowering its energy intensity. There is no other country in the world that has delivered an 8 per cent + annual GDP growth over the five-year period ending 2006 with just a 3.7 per cent growth in annual energy consumption. With 3.5 times the US population and three times the population of EU20, India has, since 2002, delivered more than twice their growth while consuming lower amounts of fossil fuels on an incremental basis in absolute terms – to reiterate, in absolute terms and not in per capita terms. China has grown faster than India but has also consumed over nine times the fossil fuels compared to EU20, over 10 times the fossil fuels compared to the US and over 11 times the fossil fuels compared to India on an incremental basis since 2002 in absolute terms. In fact, China’s incremental fossil fuel consumption since 2002 is about 130 per cent India’s total fossil fuel consumption. This is not to say that India cannot do better. Although India’s energy intensity shows up at the same level as Japan and Brazil and is better than that of Germany, India has paid a very heavy price for this achievement by denying access to modern commercial fuels to over half its population. This is indeed a heavy price to pay and is reflected in India’s poor human development index. While Indian industry has made massive strides in achieving global energy efficiency standards in a number of energy intensive sectors, India can and should improve energy efficiency in a

India’s energy challenges and choices 25 number of sectors both on the supply side and the demand side with particular emphasis on industry, buildings, and transport. India must also consider the fact that it should attempt to catch up with the United Kingdom, with an energy intensity of 0.14, and Denmark, at the top of the list, with an energy intensity of only 0.12. India has room to improve her overall energy efficiency performance by at least 20 per cent to match the best levels of efficient energy use based on currently available technologies. Energy efficiency and energy conservation are together the most potent tools to ensure India’s energy security as they can, virtually, meet some 20 per cent of India’s potential energy needs. Clean coal technologies Coal, both domestic and imported, emerges as a key energy option for India. India must take the lead in clean coal technologies, especially in-situ coal gasification that can double the life of domestic coal from the estimated 40–45 years based on conventional mining. Tapping coal-bed methane, a well-established technology, can more than double India’s gas reserves and supplies in the near term. Integrated gasification combined cycle (IGCC) technology using Indian coal has not been successful, but as India is going to become increasingly dependent on imported thermal coal, IGCC based on imported coal is a major option for raising conversion efficiencies and reducing the carbon intensity of power generation. Similarly circulating fluidized-bed combustion (CFBC) technology for the use of low quality coal and lignite can also enhance India’s energy options and choices. Expand hydrocarbon supply options India is not known to have significant oil and gas resources, although some forecasts show significant endowment with gas hydrates. Given that oil and gas are likely to remain India’s second largest energy source, India must fully exploit all onshore deposits, especially in the North East, seek deep-sea oil and gas under open acreage and pursue alternate routes to hydrocarbons based on tar sands, ore emulsion, methanol from marginal gas fields and gas hydrates. Effective use of energy diplomacy can also help diversify both fuels and their sources of supply under long-term arrangements, thereby raising energy security. Such initiatives include transnational pipelines, equity oil and gas, equity coal, and energy plantations in Latin America and Africa wherein some countries have a marginal advantage in the production of biofuels. Implement an integrated renewable energy policy The role of traditional fuels in India’s energy mix cannot be overlooked when considering India’s energy supply options. Traditional biomass will remain the third most important energy resource of India after coal and oil, even in 2031–32. It is projected to meet 10–12 per cent of India’s total primary energy consumption

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in 2031–32. This could prove to be an underestimate if agricultural growth of 4 per cent remains essential to India’s ability to deliver an eight per cent + growth over the next 25 years. This level of agricultural growth would certainly raise the share of biomass, a carbon-neutral energy resource, in India’s energy mix to levels higher than the foregoing estimates. Using India’s land resource offers many energy alternatives and choices. The theoretical potential of bioenergy is bigger by far than hydro, wind or nuclear. In fact, under certain assumptions bio energy in India could potentially deliver some 2.5 times the combined potential of all three together by 2031–32. Assuming India could actually find 60 million hectares of land for energy plantations, commercial wood plantations delivering the best-known yields of 20 tons of wood per annum per hectare could meet 29–35 per cent of India’s primary energy requirement in 2031–32 (see Planning Commission 2006 for more). If currently used agricultural, forest and animal waste, wood chips and so on are included, proponents of bioenergy have argued that, theoretically bioenergy could meet a significant amount of India’s projected primary energy needs in 2031–32. However, such bioenergy potential cannot be realized by using only fallow land or wasteland or non-arable land. Getting the best-demonstrated yields will require intensive cultivation, with water, fertilizer and pesticides. To put this in perspective, just 2.25 million hectares of land under solar cells with 15 per cent conversion efficiency could yield the same energy as 60 million hectares of wood plantations. And seven to eight million hectares of land under solar cells could give India total energy independence in 2031–32. Solar cells can be used in arid land, deserts, mountaintops, and on home or vehicle roofs. They do not need fertilizer or pesticides, and use water only for cleaning collector surfaces. Furthermore, there is a growing body of evidence that ‘green’ fuels currently in use are not truly green and that the potential impact of large-scale energy plantations or energy crops on food security is critical. Production and consumption of bioenergy in a localized and decentralized manner – consistent with age-old patterns – is indeed sustainable. However, it is far from clear what adaptive measures are needed for large-scale commercialization of these fuels so as to make commercial energy plantations and energy crops sustainable. Data on overall energy balances and the potential impact on global and local ecosystems, socioeconomic settings, local lifestyles, livelihoods of indigenous people, migration, land holdings, food security, and water security need to be established and authenticated. Research is also required to establish viable germplasms and genotypes for bioenergy. The current research gaps are indeed immense, and socioeconomic viabilities are far from certain, and, typically, area- or region-specific. In any event, a combination of energy plantations, energy crops, wind, small and micro hydel, biomass-based co-generation, and solar could deliver at least five per cent of India’s energy needs by 2031–32. As far as large scale hydroelectric power is concerned, exploiting the full hydro potential of 150,000 MW, even though its contribution to the energy mix remains small at two per cent, remains a high priority because of its ability to provide peak

India’s energy challenges and choices 27 energy as well as water storage capacity, which remains extremely low in India by global standards. However, hydropower has a number of environmental, governance and political hurdles to overcome. Apart from the issues of submergence, loss of forests and loss of biodiversity, there are many issues related to rehabilitation and the sharing of waters that dog hydro projects and delay their realization. Pursue an informed nuclear policy Expanding the use of nuclear energy for civilian use through international cooperation, and speeding up the development of domestic fast-breeder technology to ultimately enable the use of domestic thorium, remain national priorities that could potentially deliver up to five per cent of the energy mix by 2031–32 under the most assumptions for this sector. Among the various options available to address India’s energy needs, the nuclear option raises the most passionate debate; encompassing the social, economic and political dimensions of sustaining energy and climate security. Irrespective of which side of the political spectrum one is on, one cannot deny that the nuclear debate could definitely benefit from greater transparency, disclosure and sharing of available knowledge in respect of uranium reserves and their likely civil nuclear power potential; the risk of weapon proliferation and the risk of fissile material reaching wrong hands as a result of an expanded civil nuclear regime; the likely contribution of nuclear power in GHG abatement; public perceptions of safety, environmental and health concerns, as relevant to an expanded civil nuclear program; and the economics of nuclear power, including long-term management of nuclear waste. While these five concerns are as real as the nuclear option itself, there is no justification for excluding nuclear, or, for that matter, any other currently available option that offers energy and climate security. The simple truth is that there is no single silver bullet that ensures the energy and climate security of our planet and one must pursue and research all available options unless there is overwhelming and conclusive evidence to the contrary. Sustainability is all about creating options, not ruling them out. Market reforms and risk management A critical ingredient in all energy supply options is the existence of efficient and competitive upstream and downstream energy markets with minimal price and tax distortions and low entry barriers for both domestic and international players. Thus creating political consensus around the fact that India’s energy security would indeed be boosted by roping a couple of global oil majors into the Indian market, even through privatization of some State oil companies, is an essential element of a strategy aimed at securing India’s energy supply options. Such a move would strengthen domestic energy markets and integrate them with global energy markets. Another element of a policy for a sound energy supply chain is to prepare for disruptions, which are likely, through the strategic storage of oil and gas. Such strategic oil and gas reserves can address the risks of technical and supply disruption in

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addition to providing a tool for managing global price volatility. Capturing part of existing commercial storage as a strategic reserve; buying options on existing storage in countries such as Singapore; and pooling India’s strategic reserves with, say, European reserves, are all elements of far-sighted management of the energy supply chain. Technology acquisition Acquisition of efficient commercial and near-commercial technologies that yield higher efficiencies in energy extraction, conversion, transportation, distribution, storage and end use can significantly increase India’s ability to meet its future energy needs. National technology missions that seek to expand India’s domestic energy resource base through in-situ coal gasification, clean coal technologies, bioenergy, solar energy, thorium, and gas hydrates are all necessary for ensuring India’s ability to meet its energy needs. And finally, participation in global efforts such as those in the field of fusion, zero emissions and carbon sequestration should also be pursued as an effective response to meeting India’s modest, yet significant energy needs.

Conclusion India’s ability to deliver an annualized growth of eight per cent + over the next 25 years or so is critically dependent on its ability to reliably secure and supply the modest levels of energy essential to firing this growth. Making this growth inclusive, ensuring all-round improvement in human development parameters and meeting the millennium development goals require that India delivers lifeline levels of modern, commercial energy to all her citizens. This is a gigantic challenge in itself and meeting this challenge is fraught with threats, such as availability at affordable prices, environmental constraints and the unavailability of necessary energy infrastructure. Efficient and sustainable use of energy in the broadest sense will make the challenge more manageable and increase India’s ability to deal with the potential threats. Finally, integrating India’s response to the management of energy supply with global technological, institutional and market developments in the field of energy would go a long way in improving India’s energy security.

Notes 1 Updated version of the paper delivered at the TERI-KAF Conference on Energy Security September 29, 2006. 2 Unless stated otherwise, forecasts in this chapter are based upon the 2006 Integrated Energy Policy report (Planning Commission 2006).

References Planning Commission, 2006. Integrated energy policy: Report of the Expert Committee, Government of India. UNDP, 2000, World Energy Assessment: Energy and the Challenge of Sustainability, New York: United Nations Development Programme, pp. 112

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Energy and poverty in India1 Eshita Gupta and Anant Sudarshan

The notion of poverty is multidimensional. It is associated with numerous interrelated deprivations – lack of access to adequate levels of income, food, water, clothing, shelter, sanitation, health care and education. Although a definition of poverty normally does not directly include energy as a component, access to good quality energy sources is a critical determinant of the various dimensions of poverty. In accordance with Sen’s capability framework, energy carriers can be perceived as commodities that outline an individual’s capability set and thus facilitate his functioning in society (Andreas 2006). At the most fundamental level, energy delivers cooked food, clean water, health, space conditioning, and education services. A number of studies have defined ‘energy poverty’ as the absence of sufficient means of accessing adequate, affordable, reliable, high quality, safe and environmentally benign energy services to support economic and human development (Reddy 2000, Barnett 2000, World Bank and UNDP 2005 etc). People who are considered ‘energy poor’ often rely heavily on traditional biomass fuels for cooking and simultaneously lack access to even minimal electrical lighting. As per IEA (2007) and UNDP (2007–08) statistics there are still about 2.5 billion people who continue to rely heavily on traditional cooking fuels and about 1.6 billion who have no access to electricity in developing countries. India, home to more than a quarter of the world’s poor, alone accounts for approximately 50 per cent of energy-impoverished people who have a high dependence on traditional cooking fuels, and for 31 per cent of people without access to electricity (IEA 2007, UNDP 2007–08). The dependence on biomass for cooking and heating causes more than 400,000 premature deaths (mostly women and children) in India annually (IEA 2007). Apart from high dependence on traditional fuels, the vast majority of poor people in India have very low levels of energy consumption. In 2000–01, two-thirds of the population used less than 20 GJ of primary energy per capita. This is a third of the global average of 2 kilowatts per capita and less than the minimal amount of 1 kilowatt per capita estimated by Goldenberg (1990) as necessary to meet basic needs (Pachauri 2007). The purpose of this chapter is to provide a brief overview of the extent and the nature of energy poverty (as measured by poor access to clean energy) in India. We

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analyze the present situation with respect to energy access based on the National Sample Survey (NSS) 2004–05 datasets, which provide an excellent means of understanding the distribution of households by the primary source of energy used for cooking and lighting. The data highlight the fact that access to modern cooking fuels is severely inadequate in rural areas. Firewood is still the dominant fuel in the rural sector even in the top expenditure groups. Many rural poor also now depend on purchased firewood (as a result of firewood’s decreasing availability) although this trend is more common among rural rich and urban poor. It is evident that the use of electricity is still quite strongly associated with the relatively well off in India, especially in rural areas. While in urban areas the majority of households across income deciles use electricity for lighting, in rural areas this is the case only among the top six income deciles. We observe that disparities and inequalities in access to modern energy are growing between urban and rural households, between different geographical regions, and between the top and bottom expenditure deciles of the population. While access to electricity and LPG is increasing in both the rural and urban sectors, the rate of penetration is very slow in the case of the rural sector. The major constraints faced by rural people are their low purchasing power and the poor availability of these modern fuels in remote rural areas. Universal LPG subsidies have been regressive, benefiting the rich far more than the poor. Large amounts of kerosene are diverted to the automobile sector. Even in villages connected to the grid, electricity supplies are highly irregular. There has been a signal failure to ensure lifeline supplies to really poor people in rural India. In that context, the success of any energy programme and government policy needs to be gauged by the extent to which it actually benefits the poor. The structure of this discussion is as follows. We begin by reviewing the literature on the energy-poverty problem. We then discuss patterns of household energy use in India over the period 1993–94 to 2004–05 using NSS household-level energy data. Thereafter, we highlight major constraints faced by households in switching from traditional to modern fuels. Finally we draw major policy conclusions and look at a few lessons learned.

Energy-poverty problem: literature review Poverty and ‘energy poverty’ have numerous interactions. Recognizing this fact, we begin by highlighting the characteristics of the so called ‘energy poor’ or ‘energy vulnerable’. Most of the poor have limited livelihood opportunities, poor land and lack a regular cash flow. Apart from income poverty, they often lack basic education, health and other social services. Their lesser ability to pay for modern fuels and energy-using equipment results in a natural preference for freely available, but inefficient, traditional fuels. Even when improved energy is affordable to the energy poor, it is often not easily accessible in remote areas. It is generally financially unviable for state utilities to construct capital-intensive distribution networks to meet the energy demands of widely scattered low energyconsuming communities. Thus, poor people tend to have a much smaller range of

Energy and poverty in India 31 options than the rich when it comes to determining which fuels to use and what equipment to buy (Ramani and Heijndermans 2003). Consequently, the poor find themselves using traditional dirty fuels (such as firewood, dung and crop residues) in inefficient devices (with as low as 8–10 per cent efficiency), that provide little useful energy. In addition they expose themselves to serious health risks. This is particularly true for women and children, who are disproportionately exposed to indoor pollution resulting from the combustion of solid fuels. A number of studies have highlighted, besides the health risks, the significant time costs associated with the collection of these fuels (Smith and Mehta 2000; UNDP/ESMAP 2003; Parikh et al. (2001, 2003, 2005); ESMAP 2002; Dutta 2005). Parikh et al. (2005) found through a household survey of four Indian states that 85 million households spent 30 billion hours annually just in gathering fuel wood; and that 24 million adults had respiratory symptoms. The total economic burden of using dirty biomass fuels was estimated at about 300 billion rupees, using a wage rate of Rs 60 a day and accounting for opportunity costs, time off work due to health reasons, and direct medical costs of respiratory and eye diseases. A close link was found between the negative impacts of biomass and gender, since it is women who spend time collecting the fuel and who are exposed the most to combustion byproducts while cooking. In addition to severe costs of health and time, being unable to use modern energy and equipment results in lower productivity and poor quality output, and thus, consequently, lower incomes from economic activities such as agricultural farming. This leads to lower returns for labour and invested capital, and consequently a smaller surplus for reinvestment, resulting in the so called ‘energy poverty trap’. There are numerous studies that describe the impact of improved access to modern fuels on the living conditions, lifestyles and livelihood enhancements of the poor – all important for enabling people to escape the ‘poverty trap’ (Smith and Mehta 2000; UNDP/ESMAP 2003; Parikh et al. (2001, 2003, 2005); ESMAP 2002, Andreas 2006). Kemmler and Spreng (2007), using data from the National Sample Survey Organization (NSSO) found very high correlations between low levels of energy consumption (defined in terms of access-adjusted useful energy) and various poverty measures such as illiteracy, lower levels of consumption expenditures, small size of landholdings, poor housing conditions and so on. Further, as a result of increasing deforestation, there is a growing commercialization of firewood even in rural India, increasing the vulnerability of the ‘energy poor’ to energy price shocks. Consequently, many poor people pay cash for commercialized firewood (due to the scarcity of firewood) and to some extent for highly priced electricity (required to meet basic needs). They usually end up paying more than those who are well off, both in absolute terms (price per unit of useful energy) and relatively speaking, in that they spend a much larger portion of their low income on fuel and light (ESMAP 2002; UNDP/ESMAP 2003; Ramani and Heijndermans 2003). Another branch of the literature relates to the numerous determinants of fuel switching (from traditional to modern fuels). A number of studies in India and many other developing countries have shown that fuel choices depend on a complex set of

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factors, where monetary costs, gender issues, ease of availability, capital costs, and cultural preferences may all combine to encourage the persistent use of traditional biomass fuels over more energetically efficient modern alternatives (Table 3.1). In a number of field surveys it has been found that households, particularly in rural areas, even as they climb the income ladder, do not leave out traditional fuels (Heltberg 2004, Masera et al. 2000, World Bank 2003). They adapt to modern fuels like LPG but continue using fuel wood. Once modern equipment is acquired, devices using fuels down the ladder such as wood are used as insurance against supply failure. Irregularities in the supply of modern fuels like LPG, high initial fixed costs, and maintenance costs, are prime factors that hinder a complete and smooth shift towards the use of modern fuels from traditional ones. A household energy survey of Delhi conducted by TERI shows that most poor households in Delhi use a mix of LPG, kerosene and biomass for cooking. Most slum dwellers relied on kerosene and biomass as their primary fuels for cooking due to an inability to get legal connections as well as the high upfront costs of LPG compared to other fuels. Relatively affluent households in the slums used LPG as their primary fuel for cooking, but resorted to the use of biomass and kerosene as a backup fuel during periods of delay in refilling the LPG cylinders or during a shortage of the fuel (TERI 2007). Vishwanathan and Kumar (2005) found, in a study of the use of cooking fuel in Indian households, that rural households across income groups used fuel wood as their primary energy source when it was easily available. In a few states there was some evidence of shifts down the energy ladder – from fuel wood to crop residues – due to easier access. Foley (1995) has argued that, as incomes rise, additional energy services are required and these services often demand modern sources of energy. Traditional fuels may continue to be used for the most basic energy services (cooking and heating) while modern forms such as electricity may provide other services (such as lighting, radios, televisions, refrigerators). Thus it is not necessarily the case that fuels form a hierarchy (as in the energy ladder model), but rather that demand grows hierarchically for different services as incomes grow. The characteristics and vulnerabilities of the energy poor place them at a distinct disadvantage compared to the rest of the population. There exists a growing literature that highlights growing energy inequities between the poor and non-poor in India. Unsurprisingly, the poor consume significantly less energy in absolute terms and use very different technologies compared to the better off. For instance, the poor with limited access and affordability use minimum electricity for lighting and are generally unable to take advantage of productivity enhancements (such as electricity-based agricultural production and micro-enterprises) that are necessary to break the vicious circle of poverty (ESMAP 2002; UNDP/ESMAP 2003; Ramani and Heijndermans 2003). Pachauri et al. (2004) constructed a two-dimensional energy poverty measure for India that combined access to different energy carriers with the quantity of energy consumed per capita. They found that the number of people living in extremely energy-poor households in India, having access to just biomass and kerosene (and often only just enough to cook a full meal a day), decreased from 38 per cent in

Table 3.1 Factors influencing energy choice Micro-level characteristics influencing household energy choices Household income

Dominant variable determining fuel choices (e.g. ESMAP 2003, Leach 1992, Jiang 2004, Pachauri 2004).

Availability

Availability is important because studies suggest that energy security, as well as cost, determines household fuel choices (e.g. Soussan 1989). Fuel availability in turn depends on distance to markets, distribution systems and local resource endowments.

Distribution of costs/capital costs

Low-income households are often unable to purchase the equipment necessary to use energy in the form of electricity/LPG (appropriate stoves, LPG cylinders, expense of wiring house etc.). Thus high initial capital costs are a significant barrier, even if life-cycle costs and marginal costs of modern energy forms are lower than for traditional energy.

Energy technology and support systems

Technology that is affordable, does not require large lifestyle changes, is adapted to local conditions, is easily available, and has the requisite maintenance, training and financing systems to be usable, is a prerequisite to successful fuel transitions. Often these aspects are not fully taken care of, leading to the failure of initiatives such as biogas plants or improved cook stoves.

Climate

Energy use in colder areas tends to outstrip that in warmer areas. Energy for heating (often through wood combustion) is a basic energy service, while air-conditioning and even fans tend to come into use only at higher income levels.

Fuel prices

High commercial, modern fuel prices reinforce the perception of traditional fuels being much cheaper (essentially ‘free’). At the same time, even in urban areas where traditional fuels are also bought and sold, the price of modern alternatives acts as a ceiling for the price of options such as fuel wood.

Household size

Larger households need more energy but also achieve economies of scale and may have higher incomes. The playoff between these factors makes household size important in determining the extent of energy use and the nature of the fuel mix.

Gender roles

In rural areas in particular, women bear most of the health and time costs of using traditional fuels. However, decision-making powers are primarily vested in men. This asymmetry between who determines whether to purchase commercial fuels, and who is most affected by them, can greatly slow down a transition. This is particularly the case when the opportunity cost of the woman’s time is low.

Wage rates

Wage rates and employment opportunities, particularly for women, affect both overall household income and the opportunity costs of time spent cooking food or collecting traditional fuels. If wages for work outside the house are high enough, it makes economic sense for a household to switch to more efficient fuels and appliances. Traditional fuels may persist due to cultural preferences of different kinds. For example, some foods, such as traditional breads, taste different when cooked on a modern cooking appliance and households may continue to use a traditional stove to prepare these food items.

Cultural preferences

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1983–04 to 14 per cent in 1999–2000, but the inequities in distribution of energy consumption and access increased significantly over the same period. For instance, in rural India just one third of the extremely energy poor were able to improve their situations as against the corresponding fraction in urban areas. Further, while there was a decline in the number of very energy poor in the bottom energy consumption segment, there was only five per cent reduction in the total number of people in the bottom and lower consumption segments taken together. At the same time the number of people in three relatively better off segments (high consumption consumers having access to either electricity, or LPG, or both, along with other fuels) increased from three million in 1983 to 160 million in 1999. Similarly, Vishwanathan and Kumar (2005) and ESMAP (2002), undertook an analysis of cooking fuel use in India for different states between 1983 and 2000, based on NSS household-level data. They found marked differences in the extent of transition to modern fuels in different states, as well as differences in the progress of the energy transition across income groups and urban and rural areas.

Patterns of household energy use in India We discuss here the NSS sixty-first round (July 2004–June 2005) survey along with a comparative picture of earlier periods i.e. the last two quinquennial rounds (fiftieth (1993–94), fifty-fifth (1999–2000)) of household consumption expenditure. Patterns of energy use for cooking The major cooking fuels in India are firewood and chips, dung, kerosene and LPG. According to the NSSO 2004–05 survey 124.98 million households (about 60.57 per cent) used firewood and chips as a primary source of energy for cooking. About 7 per cent of households used dung, 3.7 per cent used kerosene and 22 per cent used LPG. In rural India, households primarily use three sources of energy for cooking –firewood and chips, dung cakes, and LPG. It is observed that a more or less constant percentage (75 to 78 per cent over the period 1993–2004) of rural households are dependent on firewood and chips, due to their cheapness and easy availability in the rural sector. It was observed that on average, 46 per cent of households using firewood and chips in rural India obtain these fuels through ‘free’ collection; about 21.14 per cent of households depend on home-grown stock; and 23.7 per cent make cash purchases. Whereas the use of LPG has gradually increased in rural India from 1.9 per cent in 1993–94 to 8.6 per cent in 2004–05 owing to its improved availability and convenience, the use of dung cakes has declined only marginally from 11.5 per cent in 1993–94 to 9.1 per cent in 2004–05. This slow drop provides some cause for concern. In urban India, LPG is the most commonly used primary cooking fuel, followed by firewood and chips, and kerosene. More and more households have switched from firewood and chips and kerosene to LPG. In 2004–05, 57.1 per cent of urban households met their primary cooking needs by using LPG as compared to

Energy and poverty in India 35 just 29.5 per cent in 1993–94. Interestingly, LPG may have displaced kerosene more than it has displaced firewood. The decline in the use of kerosene, from 23.2 per cent to 10.2 per cent is greater than the decline in the use of firewood and chips, from 30 per cent to 21.7 per cent. Firewood is the second most commonly used primary cooking fuel, with more than one-fifth of the population dependent on it as a primary source of cooking energy. Unlike in rural areas however, it is a commercialized fuel in urban India, with about two-thirds of urban firewood-using households having purchased the fuel. Further, one observes that many households use multiple fuels for cooking. This means it is necessary to be very careful when interpreting data on the spread of any single fuel in isolation. For instance, in 2004–05, about 86 per cent of rural households used firewood and chips, as against 75 per cent using it as the primary source discussed previously. Thus the adoption of a modern fuel has not meant that the traditional fuel disappears entirely. Similarly, LPG was used by about 11.7 per cent of rural households, as against 8.6 per cent primary users. Only 2.7 percent of the LPG users were using it as the only cooking fuel. All others were multiple fuel users. Access differences based on income In order to study income-related differences in the use of fuels, we further disaggregate data by income deciles. Households in both the rural and urban sectors are arrayed in order of increasing per capita expenditure and categorized into 10 groups – by monthly per capita expenditure deciles – each having the same number of households. The first decile (D1) refers to the poorest 10 per cent of the population while the 10th decile (D10) corresponds to the richest 10 per cent of the population. Figure 3.1 gives the proportion of households using firewood and chips, dung, kerosene and LPG as the primary source of energy for cooking as a function of per capita expenditure decile, both in rural and urban India. The graphs in Figure 3.1 indicate that while LPG tends to be a normal good with higher income resulting in higher consumption, solid fuels (firewood and chips, dung) behave largely as an inferior good with consumption declining with income. This is in accordance with the energy ladder of fuels, with people climbing the ladder from traditional to modern fuels as their purchasing power increases (see Leach 1992; Barnes and Floor 1996). In both the rural and the urban sectors, a larger number of households belonging to the lower deciles used more firewood and dung and less kerosene and LPG compared to households in the higher MPCE deciles. Figure 3.1 clearly shows that the use of the two traditional fuels (firewood and chips, dung) declines very sharply in the urban sector, whereas in the rural sector the use declines relatively less steeply. In fact, monthly per capita consumption of firewood and chips increased in absolute terms from 17.47 kg in the lowest income decile, to 22.7 kg in the highest income decile, in the rural sector. In the urban sector, it is much harder to access traditional fuels and even fuel wood needs to be purchased, so, with higher per capita incomes, cleaner alternatives such as kerosene or LPG become attractive

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Figure 3.1 Primary cooking fuels by MPCE deciles in rural and urban India (2004–05).

options. In contrast, in the rural sector, high fuel prices reinforce the perception of traditional fuels being much cheaper (essentially ‘free’). The high dependence on traditional fuels even among higher income groups in rural India can partially be explained by the fact that they generally possess more land and livestock, and thus tend to have easier access to freely available home-grown stock. However, when richer people depend on biomass they usually employ hired help to collect it (Leach 1992). Also, they are able to purchase more efficient biomass stoves (even available with chimneys) reducing their exposure to indoor pollution.

Energy and poverty in India 37 The use of kerosene is miniscule in the rural sector and rises consistently with income deciles, yet even in the top two deciles, just 3 per cent of all households used kerosene as a primary source of energy for cooking. The fact that kerosene is a rationed fuel may have discouraged households from adopting it for cooking so that its limited supply could be used for other functions such as lighting (perhaps as a backup source). In the urban sector, on the other hand, with its easy availability through public distribution systems, kerosene has emerged as a first transition fuel for the urban poor, with its use first increasing to exceed 15.12 per cent by the 6th decile and then declining to reach 6.14 per cent in D10 (ESMAP 2002; UNDP/ESMAP 2003). The use of LPG in the urban sector increases substantially with rising per capita expenditure, being used in more than 50 per cent of households by decile 7 and 80 per cent of households by decile 10. In rural India, a very small proportion of households belonging to the bottom segments used LPG as a primary source of energy. It is observed that the use of LPG increased sharply in the top three deciles, to reach 42.81 per cent in D10 (still just half of the consumption in D10 of the urban sector) from a small 0.19 per cent in D1. Clearly, LPG penetration is still very low in rural regions and almost nonexistent amongst the poorest households. While the energy poor in the urban sector have the choice of using LPG (with readily available supply), their inability to get legal connections, as well as the high upfront costs of LPG (compared to other fuels) are the major factors for their not switching to modern fuels. In the rural sector, on the other hand, apart from lower affordability poor households also suffer from inadequate supply. This is reflected by much lower levels of adoption, even by the richest 10 per cent of the rural population. Access based on occupation NSS data reveals that household energy use is also influenced by the occupation groups of the householders – defined as agricultural labour, non-agricultural labour, self employed in agriculture or non-agriculture, other labour, other households (having very diversified income sources), regular wage earners or casual workers, and so on. In the rural sector, the use of solid fuels (wood and dung) was highest among agricultural labourers (85 per cent). Agricultural labourers usually live in very poor conditions, have lower opportunity costs of time, and thus depend largely on freely available fuels. In the urban sector, the use of solid fuels was highest among casual labourers (58 per cent) and lowest among regular wage earners (12 per cent). Higher wages in the urban sector make it economically sensible for households to switch to more efficient fuels and appliances. Access based on social classification In rural areas, the schedule tribes (90 per cent) and schedule castes (77.2 per cent) use significantly larger amounts of traditional fuels as compared to other classes. Although these social groups usually live in poor and backward areas, this may also suggest the existence of access discrimination (like rationed kerosene). In urban sectors, LPG is the most commonly used fuel across all social groups.

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Access based on geographical location Statistics also show significant geographical variations in patterns of use. In rural India, LPG has the highest penetration in the three high income states of Punjab (24 per cent), Haryana (19 per cent), and Kerala (18 per cent). Similarly, in the urban sector, Punjab (70.3 per cent), Haryana (72.9 per cent) and Gujarat (62.3 per cent) are amongst the highest users of LPG. Although relatively poorer states largely have a lower penetration of modern fuels (such as Bihar, Orissa, Chhattisgarh, Assam and Jharkhand) one observes an absence of absolute linear relationships between a state’s income and the fuel mix. For instance, Kerala (urban), one of the most developed states, is observed to have a much higher dependence on firewood and chips (48.4 per cent) and a corresponding lower LPG penetration (43.7 per cent) as compared to Assam (urban: 27.2 per cent firewood and chips; 60.6 per cent LPG) and Rajasthan (urban: 38.6 per cent firewood and chips; 51.3 LPG). This is reflective of the fact that Kerala is a heavily forested state where wood is readily available. Similarly, in high-income rural Punjab, where dairy farming is widespread, a large number of households (33.3 per cent) use dung as a primary cooking fuel. Thus, easy availability is an important determinant of traditional fuel use.

Patterns of energy use for lighting In India, kerosene and electricity are the two major sources of energy for lighting, accounting for about 99 per cent of households in both rural and urban areas2. Over time, electricity is increasingly displacing kerosene as a source of lighting both in rural and urban India. Between 1993–94 and 2004–05 about 17 per cent of households in rural India shifted from kerosene to electricity, as against 9 per cent in the case of urban India. In the rural sector, the use of kerosene as a primary source of lighting is very high; 44 per cent of rural households were dependent on kerosene in the year 2004–05 as compared to just 7 per cent in urban India. In the same year, 54.9 per cent of rural households derived their lighting energy requirements from electricity as against 92.3 per cent in urban India. Many households with access to electricity exhibit significant consumption of kerosene for lighting, particularly in the rural sector. This shows that such households may be using kerosene-based lamps in case of electricity supply failures; and that even households connected to electricity have not necessarily made the transition away from kerosene completely – whether it is used as a lighting backup fuel or as a supply source to run a small generator for times when the mains supply is unavailable. Access based on income Figure 3.2 shows the proportion of households using kerosene and electricity as the primary source of energy for lighting as a function of per capita expenditure deciles both in rural and urban India.

Energy and poverty in India 39 In rural India we observe that the majority of the households between decile 4 and decile 10 used electricity as the major source of energy for lighting. However, among lower MPCE groups the use of kerosene is still very high, with almost

Figure 3.2 Households using kerosene and electricity as the primary source of energy for lighting.

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70 per cent of households in decile 1 depending on kerosene in to meet their primary lighting requirements. The high dependence on kerosene among low-income households is explained by the high installation cost of electricity services and equipment; poor-quality housing; and, at the same time, a much greater preference for mobile lighting, which is better achieved with kerosene lamps. In urban India on the other hand, access to electricity depends less on income as the majority of households use electricity in all income deciles with the penetration reaching over 90 per cent by decile 6 from 56.6 per cent in decile 1. In urban India the difference in electricity access between richest and poorest appears to be much less as compared to the rural sector. Access based on occupation Again, in rural India, access to electricity is found to be least among the agricultural labourers (47.6 per cent). In urban India, the use of electricity is highest among regular salary earners (97 per cent) and lowest among casual labourers (76 per cent). Access based on social groups In both rural and urban India, the use of electricity was less frequently observed for scheduled tribes (42.7 per cent in rural; 83.8 per cent in urban), followed by scheduled castes, and then by other backward classes and ‘others’ (64.3 per cent in rural; 96.1 per cent in urban). Access based on geographical location There are significant geographical differences in electrification. The use of electricity is found to be positively correlated with the level of income in different states. In rural India, the use of electricity was highest in Punjab (96 per cent of the households) followed by Haryana (90 per cent), Karnataka (86 per cent), Tamil Nadu (84.6 per cent) and Andhra Pradesh (84 per cent). The proportion of households using electricity is lowest in Bihar (10 per cent), Uttar Pradesh (24 per cent), Jharkhand (26 per cent), Assam (30 per cent) and Orissa (31.5 per cent). These are also the states with the greatest number of villages not connected to electricity. Kerosene is still used predominantly in these states. One also observes some correlation between the state economy’s dependence on agricultural land and irrigated areas, and rural electrification. Apart from Punjab, Haryana and two middle-income states, namely, Andhra Pradesh, and Maharashtra (with a large net sown area, and large areas of irrigated land) have high rural electrification, because electricity is extensively used in agricultural pumping and cropping. In urban India, in 10 out of 17 major states, over 90 per cent of the households obtain their lighting energy requirements from electricity. In the urban areas, the percentage of households using electricity is again found to be lowest among the two poorest states –Bihar (68 per cent) and Orissa (70 per cent).

Energy and poverty in India 41

Major constraints on the transition to modern fuels Trends in energy use show that neither growth in income growth nor the affordability of alternatives can alone bring about the change to using modern fuels. There are numerous other factors, such as fuel availability, culture, geography, the extent of urbanization, fuel prices and the design of state policies that influence fuel choice. This section seeks to describe some of the major constraints faced by households in the process of undertaking the energy transitions just discussed. Part of the reason the use of traditional fuels has persisted is that the Indian Government has been unable to provide affordable, abundant and highly reliable modern alternatives. Present energy policies tend to have an urban bias, with much focus on commercial fuels – coal, oil and gas – fuelling urban energy consumption and growth. Further, there has been very little integrated planning by the state. Both market-driven and subsidy programmes have run side by side, which is counterproductive. Typical of many government efforts, targets and incentives in different schemes are set independently of each other. Individual targets for the improved chulha programme and biogas plant projects have sometimes been known to cumulatively exceed estimated demand (TERI 2007, ESMAP 2003). Some of the major problems in this context are discussed below. Poor targeting of subsidies and programmes In the past, subsidies have been largely mis-targeted. Broad-based LPG subsidies, perversely, tend to benefit the better off much more than the truly poor, because of the greater consumption and greater ease of access of those who are wealthier (Saghir 2004, World Bank 1996, Barnes and Floor 1996, Pitt 1985). A World Bank study highlighted that in 1999–2000 three-quarters of the LPG subsidy went to urban households, four-fifths of which was given to the top 50 per cent of the population (UNDP/ESMAP 2003). High subsidies also make it hard for utilities to stay in business, upgrade equipment and expand services. In the long run, they are often financially unsustainable. Subsidies with quantity rationing often lead to corruption and problems of access. In the case of kerosene, a significant fraction of the subsidised fuel is illegally diverted and used to adulterate diesel (a practice encouraged by the price differential between diesel and kerosene). Additionally, the remaining kerosene that does reach consumers suffers from the same problems of poor targeting as plagues LPG subsidies (UNDP/ESMAP 2003).Most electrification programmes focussed more on the number of villages connected to electricity than households. Many of the specifically targeted schemes (such as kutir jyoti) for people below the poverty line have not been successful due to large scale leakages and uniform flat rates regardless of the level of consumption. Excessive subsidization has made the utilities financially unviable. Due to increasing financial constraints there have been providers of utilities reluctant to promote such schemes as would benefit the poor (ESMAP 2002, Ailawadi and Bhattacharyya 2006; Modi 2005). Subsidies have meant that LPG supplies are limited and the electricity supply, even where grid connections are available, is highly unreliable. Similarly, while

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kerosene has many advantages over fuels such as firewood, it too needs to be subsidized. Extending energy sources such as LPG or electricity to India’s vast rural population will necessitate large increases in the imports of fossil fuels. With the need to find long-term, credible solutions to concerns about the country’s energy security, chances of complete elimination of traditional fuels in the foreseeable future are very small. The use of traditional sources is not undesirable in itself –it is the manner in which they are used that is the problem. As fuel prices rise and global energy supplies become scarcer and more threatened by geopolitical tensions, this is a huge problem for India to deal with. It is also a problem that the country cannot afford to ignore – as we have pointed out, the costs of energy poverty are extremely high. To tackle these twin problems, an approach that has been tried in India has been to encourage the use of clean decentralized renewables in rural India, as well as cleaner technologies that rely on traditional fuels. This approach has always had a great deal of potential – from the point of view of tackling both energy security and climate concerns. Unfortunately state efforts in this direction have had only limited success, especially in rural India. To understand why rural policies have not succeeded nearly as well as India would like, it is essential to appreciate the complexities of the energy poverty problem. For example, an important factor holding back the spread of decentralized renewables and cleaner technologies, particularly in rural households, is that often the technology required is still relatively nascent and requiring further development. Unfortunately, options such as solar cookers, biogas plants and improved chulhas of various kinds, while promising technologies in the lab, have not turned out to be good substitutes for traditional methods in the field. Box solar cookers, for example, can be used to cook only food requiring certain cooking techniques (such as boiling). Therefore while it is possible to cook rice, pulses and boiled vegetables, it is impossible to fry food or make rotis. Newer parabolic cookers provide much greater heating but come with other problems. One drawback with these is that they are open cookers and consequently short spells of cloud and/or rain can completely ruin the meal. Biogas plants have tended to be a better-designed option, but require careful construction and regular maintenance. Problems such as construction quality, low gas output in colder climates and poor design for inputs other than dung are urgent issues that require research and development time (also TERI 2003). Alternative technologies need to fit in to an existing ‘energy ecosystem’. It is often forgotten that traditional energy sources or cooking tools, while perhaps ‘inefficient’, are part of a lifestyle that has adapted around them. Consequently alternatives need to be made close substitutes, or they must battle a resistance to changes in habits. One good example is the traditional wood-fired stove (chulha). This device is smoky and energy inefficient, but in practice has been found to have unexpected secondary uses. For instance, chillies or spices to be dried can be stored hanging over the chulha. Eliminating the smoke would mean creating the need to find a different way of smoking and drying some food items. In addition, in some areas, smoke from cooking serves the secondary purpose of keeping mosquitoes away. Similarly, it is common practice in some parts of India to cook either indoors or outdoors (depending on the season). Alternatives that are not portable will

Energy and poverty in India 43 therefore need to battle ingrained habits to gain acceptance. Thus a new smokeless chulha with a chimney might end up being rejected by households, even though it might be more efficient and healthier. Clean fuels tend to be perceived as losing out on the cost equation. A large number of rural households are characterized by low purchasing power, as well as access to fuels such as dung, crop residues or wood at no monetary cost. Gathering these fuels has significant time costs and using them to cook is a serious health hazard. However, the bulk of these costs are borne by women and children who possess relatively little negotiating power in the household. Decisions to spend money on biogas plants or new chulhas or LPG stoves are strongly influenced by men. Within the household, the value of a woman’s time is regarded as extremely low and with the brunt of health costs not being borne by the person making purchasing decisions these are not factored in when making energy choices. Consequently, it becomes harder to convince many rural households of the value of paying for either clean technologies, or cleaner fuels such as LPG. Institutional shortcomings and bad programme design and implementation have played no small part in the disappointing results from India’s efforts to disseminate non-conventional energy sources. To take one example – the success or failure of these programmes has normally been judged by whether or not they meet prespecified targets. The targets have been defined in terms of units installed, with no reference to continued functionality after a period of time, backup services or actual use. Consequently, during implementation the thrust has been on pushing the programmes in as many areas as possible, backed by heavy subsidies, but without sufficient care being taken to ensure that there is a good match between the needs of users and the schemes being promoted. Policy implications The preceding sections have looked at the characteristics of energy poverty, complexity in the way households make energy choices, and major shortcomings in government programmes. An important question for policy makers is how to guide the fuel-switching process along a sustainable pathway, and how to ensure that it occurs as quickly and smoothly as possible. In this section we explore some of the issues that need to be kept in mind when framing policy with the objective of encouraging households to shift to newer and better forms of energy. Addressing energy affordability As poor households have low incomes and they spend a significant proportion of their income on fuels for cooking and lighting, the issue of energy affordability assumes significant importance. In principle smart LPG and kerosene subsidies specifically directed to the poor (perhaps implemented with energy coupons distributed to the poor) and financial support for the initial capital costs and nonrecurrent costs can go a long way towards enabling poor households to make more efficient choices (Heltberg 2004, World Bank 2003).

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Enabling widespread access We have seen that affordability alone is not enough to motivate shifts in energy use. Enabling widespread access to modern alternatives is also crucial if transitions are to work. Unfortunately when fuel supply and distribution systems are controlled by the state (such as for kerosene or LPG in India), there tend to be inequities in distribution (with major urban areas being far better served than more remote widely scattered locations), black markets and corruption. Without making any comment on the advantages or disadvantages of state control over certain fuel markets, it is clearly the case that unless easy access can be ensured, equitable and widespread use is unlikely to be seen. Another aspect of enabling easy access lies in making it possible for poor households to purchase small amounts of energy at a time. LPG for example, is sold in cylinders and therefore must be purchased in bulk. Given the reality of households with limited credit and limited willingness to pay large amounts at a time for energy, it is necessary to size the cylinder optimally for the consumer. However, the ‘optimal’ amount of fuel is clearly very different for an urban household with higher energy use and higher purchasing power, than for a poor, rural household. Thus even though buying large amounts of the fuel at a time reduces the average cost of energy, the initial capital costs of larger cylinders may well be beyond many households. As far as electricity is concerned, a similar problem occurs if low ampere connections are not available. In many cases rural consumers do not require connections rated for high loads, since they are not looking to run many appliances that might be used in a higher-income urban setting. Thus, ensuring the availability of electrical connections that take into account the needs of the consumer is important, and it is not necessarily the case that one size should fit all. Appreciating the complexities governing energy choice Large-scale programmes aimed at electrification or the provision of fuels such as LPG need to be framed after taking into account the fact that household energy choices are made on the basis of a number of factors, not just monetary costs. In addition, households often look to maximize their energy security and therefore prefer fuel mixtures. Thus merely setting up infrastructure does not guarantee a transition – actual use requires both consistent availability and the alignment of other factors such as capital costs, suitable technology, culture, and gender issues. All these issues need to be considered when determining what a realistic consumer response is likely to be, and what is the appropriate pricing and distribution mechanism that would allow the programme to be a success. Taking cognizance of gender realities As we have stressed earlier, energy poverty is linked quite closely with gender roles and the earning power and empowerment of women. Energy policy must therefore be framed with this fact in mind. It is crucial to involve women in the

Energy and poverty in India 45 testing and design of new cooking technologies. For programmes concerning the use of improved cooking stoves or solar cookers, the end users are women, so it is important to convince them of the utility of the new technology. At the same time, men are often the decision makers when it comes to spending money on alternatives. Therefore it is important for both men and women to be a part of the technology dissemination process. Changing societal awareness of the true costs of traditional fuels; increasing female participation in the decision making process; and getting the state to focus on this aspect of energy security are all prerequisites to substantive change. Decentralization, modern renewables and sustainable biomass Decentralized electricity generation, especially through the use of modern renewables such as solar photovoltaics and the sustainable use of biomass, provides options that should be at the forefront of energy policy in developing countries. While it is true that at this point in time the technology does not exist for these energy options to economically provide large-capacity additions, they still have an invaluable role to play in providing lifeline amounts of clean energy, especially in remote areas where grid electrification is more difficult. With the use of biofuels likely to continue for many years, even under optimistic projections, technologies such as wood gasifiers or biogas plants, and the spread of farm forestry and natural forest management, can make a huge difference towards reducing energy inequities and improving energy access. Finally, we conclude by observing that energy developments cannot be made in isolation. Improved access to clean fuels will not result in human development by itself. The provision of adequate energy is a necessary but not a sufficient condition to shift the poor out of the vicious circle of ‘poverty’ or ‘energy poverty’. This will occur most easily when other complementary inputs – employment, opportunities to use modern energy, education, connectivity and so on are all made available. It is easy to see why a remote household with poor employment options and little access to the fruits of development might consider the form of energy being used somewhat low on a wish-list of changes. Thus an energy transition is part of a package. While we may study it in isolation, it is far more likely that specific programmes will succeed if they come alongside other efforts or changes that help the process of development.

Notes 1 The authors gratefully acknowledge Mr Prabir Sengupta, Mr R K Batra and Dr Pradeep Dadich for their guidance and valuable comments on this paper. We are extremely thankful to M K Bineesan for his contribution for data and graphs. 2 In 2004–05, about 65.23 per cent of households (or 134.97 million households or 625.68 million individuals) met primary lighting requirements from electricity and 34.18 per cent of households (or 70 million households or 350.08 million individuals) met primary lighting requirements by kerosene.

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References Ailawadi, V. S., and Bhattacharyya, S. C., 2006. ‘Access to energy services by the poor in India: current situation and need for alternative strategies.’ Natural Resource Forum, (30), pp. 2–14. Andreas, K., 2006. ‘Regional disparities in electrification of India – do geographic factors matter?’ CEPE Working Paper No. 51, Zurich: Centre for Energy Policy and Economics (CEPE). Barnes, D. and Floor, W., 1996. ‘Rural energy in developing countries: a challenge for economic development.’ Annual Review of Energy and the Environment (21), pp. 497–530. Barnett, A., 2000. ‘Energy and the fight against poverty.’ Livelihood sector report, UK: Department for International Development (DFID), viewed 12 June, 2008 . Dutta, S., 2005. ‘Energy as a key variable in eradicating extreme poverty and hunger: a gender and energy perspective on empirical evidence.’ On MDG #1, Noida, Ghaziabad: ENERGIA International Network on Gender and Sustainable Energy. Foley, G., 1995. ‘Photovoltaic applications in the rural areas of the developing world.’ World Bank Technical Paper Number 304, Energy Series. Washington DC: World Bank, p. 17. Heltberg, R., 2004. ‘Fuel switching: evidence from eight developing countries.’…nrgy Economics, 26(5), pp. 869–887. IEA, 2007, China and India insights, world energy outlook 2007. Paris: IEA. Joint United Nations Development Programme (UNDP)/World Bank Energy Sector Management Assistance Programme (ESMAP), 2003. ‘India: access of the poor to clean household fuels’, UNDP/ESMAP, Washington, DC, USA: The World Bank. Joint United Nations Development Programme (UNDP)/World Bank Energy Sector Management Assistance Programme (ESMAP), 2002. ‘Energy strategies for rural India: evidence from six states.’ Washington, DC, USA: The World Bank. Joint United Nations Development Programme (UNDP)/World Bank Energy Sector Management Assistance Programme (ESMAP), 2004. ‘The impact of energy on women’s lives in rural India’, 2004. Washington, DC, USA: The World Bank. Kemmler, A. and Spreng, D., 2007. ‘Energy indicators for tracking sustainability in developing countries., Energy Policy, 35(4), pp. 2466–2480. Leach, G., 1992. The energy transition. UK: Butterworth-Heinemann Ltd. Masera, O. R., Saatkamp, B. D. and Kammen, D. M., 2000. ‘From linear fuel switching to multiple cooking strategies: a critique and alternative to the energy ladder model.’ World Development, 28(12), pp. 2083–2103. Modi, V., 2005. Improving electricity services in rural India: an initial assessment of recent initiatives and some recommendations. New York: The Earth Institute at Columbia University. National Sample Survey Organisation, 2007. Energy sources of Indian households for cooking and lighting, 2004–05. New Delhi: The National Sample Survey Organisation (NSSO). Pachauri, S, 2007. An energy analysis of household consumption: changing patterns of direct and indirect use in India. The Netherlands: Springer. Pachauri, S., Mueller, A., Kemmler, A. and Spreng, D., 2004. ‘On measuring energy poverty in Indian households.’ World Development, 32(12), pp. 2083–2104. Parikh, J. K., Biswas, H. and Karmarkar, S., 2003. ‘Cooking with bio-fuels: risk factors affecting health impact on rural women.’ Economic and Political Weekly, pp. 2681–2692. Parikh, J. K., Pandey, V. L. and Parikh, K., 2005. ‘Lack of energy, water and sanitation and its impact on rural India.’ In Parikh, Kirit S. and Radhakrishna, R. (eds.), India development report 2004–05. New Delhi: Oxford University Press.

Energy and poverty in India 47 Parikh, J. and Sharma, S., (year nm), ‘Energy poverty and gender nexus: a case study of Himachal Pradesh.’ India, available from www.energia.org/resources/reports/2006_ wrec_irade_nexuspaper.pdf. Parikh, J., Balakrishnan, K., Laxmi, V. and Biswas, H., 2001. ‘Exposure from cooking with bio-fuels: pollution monitoring and analysis for rural Tamil Nadu.’ Energy –The International Journal, 26, pp. 949–962. Pitt, M., 1985. ‘Equity, externalities and energy subsidies.’ Journal of Development Economics, 17, pp. 201–217. Ramani, K. V. and Heijndermans, E., 2003. Energy, poverty and gender: a synthesis. Washington DC, USA: The World Bank. Reddy, A. K. N., 2000. ‘Energy and social issues.’,in World Energy Assessment. New York: UNDP. Saghir, J., 2004. ‘Energy and poverty.’ Paper prepared for the International Energy Forum. Washington, DC: The World Bank. Smith, K. R. and Mehta, S., 2000. ‘The burden of disease from indoor air pollution in developing countries: comparison of estimates.’ Paper prepared for US Agency for International Development (USAID) and World Health Organization (WHO) Global Consultation, Health impacts of indoor air pollution and household energy in developing countries: setting the agenda for action, 3–4 May Washington DC. TEDDY (TERI Energy Data Directory and Yearbook), 2007. Energy demand: domestic sector. New Delhi: TERI. TERI, 2003. Rural energy matters: the Dhanawas experience. New Delhi: TERI Press. TERI, 2007. ‘Supply of clean energy services to urban and peri-urban poor, case study’ – Delhi, Global Network on Energy for Sustainable Development (GNESD), Unpublished. The Institute of Development Studies, The University of Sussex, UK, 2003, Energy, poverty and gender: a review of the evidence and case studies in rural China. Washington DC, USA: The World Bank. The World Bank, 1996. Rural energy and development: improving energy supplies for 2 billion people. Washington, DC, USA: The World Bank. United Nations Development Programme (UNDP), 2007. Human Development Report 2007/2008: fighting climate change: human solidarity in a divided world. New York: Palgrave Macmillan. Viswanathan, B., and Kavi Kumar, K. S., 2005. ‘Cooking fuel use patterns in India: 1983–2000.’ Energy Policy 33(8). World Sustainable Development Forum – DSDS, 2007. Securing energy sustainably – a development imperative. New Delhi: TERI Press.

Part II

The global context Trade and geopolitics

4

Trading in the world energy market1 Nitya Nanda

As has previously been pointed out in this book, fossil fuels are the source of most of India’s commercial and primary energy supplies. They are also not a resource the country is particularly well endowed with. Thus even as 90 per cent of India’s commercial energy comes from fossil fuel, domestic reserves of crude oil are sufficient for only about eight years’ worth of current consumption (33 years at current production levels2). The situation is no different in the case of natural gas, where proven reserves stand at about 1100 billion cubic metres and would last for about 32 years at the current level of production3. Even with respect to coal, the most abundant energy source in India, if production continues to grow at five per cent per annum as it is doing now, proven extractable reserves are estimated to last for only about 40 years. Meanwhile the country’s consumption of non-commercial sources of energy (such as biomass) is dropping. About one-fourth of India’s primary energy came from non-commercial sources in 2004. By 2031–32 however, while the total primary energy supply (TPES) will have risen substantially, non-commercial sources are expected to provide barely 10 per cent of the TPES (Planning Commission 2006). As a result, India’s dependence on foreign sources for fossil fuel (already quite high) is likely to reach about 80 per cent in the year 2031 (TERI 2006). The nation’s energy security is therefore critically linked to the performance of global energy markets. The challenges in this respect are aggravated by the fact that not only has supply capacity not been able to keep up with increases in demand in the last few years (resulting in sharp price increases), but also the major suppliers of oil to India behave as a cartel.

Energy and India’s trade Before exploring the links between energy trade globally and India’s security concerns, it is a good idea to understand the nature of energy flows into and out of the country. India is among the major traders in the global energy market. Of the 2235 million tons (Mt) of crude oil traded globally, India is the sixth largest importer with a share of 4.3 per cent. Yet it has very little or no influence on what is essentially a sellers’ market. The country is, however, the fifth largest producer of

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petroleum products, with an annual production of about 108 Mt constituting about 2.9 per cent of global production (Table 4.1). In fact, India has become a significant exporter of petroleum products in recent years. The country is also not a significant trader in natural gas though it is considered to be clean and the energy of the future. This has largely been due to infrastructure constraints with liquefied natural gas (LNG) imports only commencing in 2004. Natural gas has been the fastest growing market among energy products though and currently imports stand at about 5.0Mt of LNG annually. Finally, even though India produces a large amount of coal, the size of the domestic market has meant it is also sixth largest importer of coal. The West Asian region provides as much as 67.43 per cent of India’s oil imports. It is not only the nearest region from which India can import oil, but also has about 57 per cent of the global reserves of oil, contributes about a quarter of global production, and accounts for about half of global exports. It is, therefore, rather difficult to reduce India’s reliance on West Asia to any significant extent in spite of the political volatility of the region, and the inherent risks associated with concentrating supply sources. Since India’s dependence on foreign energy has been very high, energy products (particularly petroleum) have always been a significant component of India’s import basket. In recent history, oil has constituted a very large share of India’s total import bill. In 1980–81 as much as 40 per cent of India’s import bill was due to oil imports. This share has fluctuated since and is an important index of national energy security perceptions. The share of oil in imports came down to almost 15 per cent by the late eighties before increasing once again in the wake of the first Gulf War. Post liberalization in 1991, as India’s imports of other commodities grew it dropped again to about 15 per cent, primarily over the course of the next decade. Table 4.1 India’s position in global energy production and trade – 2004 Crude oil Mt

Coal Mt

Natural gas BCM

Petroleum products Mt

Global production

3923

5878

28721

3719

Indian production*

34 (0.87)

430 (7.32)

32 (0.11)

108 (2.9)

Indian consumption*

130 (3.31)

454 (7.72)

32 (0.11)

107 (2.9)

2235 (56.97)

778 (13.24)

838 (29.18)

825 (22.18)

96 (4.30) 73.85

37 (4.76) 8.15

6.9

9.75 (1.18)

Global trade* Indian imports** Indian import dependence Source: IEA (2006).

* Figures in parentheses are percentage of global production ** Figures in parentheses are percentage of global trade.

–

Trading in the world energy market 53 In recent years, however, the share of oil in the import bill has once again gone up and at present stands at about 33 per cent. Interestingly, this is owing to two very different factors. The primary cause has been the sharp increase in oil prices. A second reason however, has been because of imports of crude oil meant not for domestic consumption but for refining and export. Importantly therefore, because India is now a major exporter of refined petroleum products, the net import bill is lower. This is a relatively recent development. Even a few years back exports of petroleum products were small. In the year 2006–07, petroleum products became India’s largest export item, with a share of about 15 per cent of total exports, replacing gems and jewellery, which had held the top position in the Indian export basket for decades. Between 2005–06 and 2006–07, the proportion of petroleum products in total exports has risen from about 11 to 15 per cent, while the share of petroleum in total imports has seen a marginal fall. In the fiscal year 2006–07, India’s export of petroleum products was about 32 Mt, representing about 3 per cent of global trade and making India among the top ten exporters in this segment. The net oil import is less than 25 per cent of total import now. This is not very different from several countries in this regard, including the United States and Japan, though China is in a far better situation. Having said this, it is important to point out that about one-third (35 per cent) of India’s export earnings goes to finance the country’s energy bill. For other major energy importers: the United States, Japan and China, the figures are 24.4 per cent, 24.8 per cent and 8.5 per cent respectively. This is because India is running a huge trade deficit. The emergence of India as an exporter of petroleum products has added a new dimension to the issue, as petroleum products constitute about 15 per cent of Indian exports, but they are entirely dependent on imported crude.

The global market and prices Globally, oil is the most important source of energy, followed by coal and natural gas. While about 34 per cent of TPES comes from oil, coal and natural gas constitute about 25 per cent and 21 per cent of TPES respectively. The share of oil, however, has shown a substantial decline over the last couple of decades (it stood at 45 per cent in 1973). This loss of share in global consumption has been, more or less, compensated for by gains in the share of natural gas and nuclear energy, which increased from about 16 per cent to 21 per cent and less than 1 per cent to more than 6 per cent respectively (IEA 2007). Among the three important energy products, oil is different from coal and gas, with respect to place of production and consumption. Currently about 4,000 Mt of crude oil is produced globally and about 57 per cent of that amount is traded internationally. This means more than half of the crude oil is consumed in a country other than the country of production. In the case of coal and gas, however, the situation is reversed. The shares of trade in total global production in coal and gas are about 13 and 29 per cent respectively (Table 4.1). Relatively high transportation costs, the ease of use (or rather the lack of it) or just domestic availability in consuming countries are among the reasons why this is the case. It is, however,

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interesting to note that though the share of trade in crude oil production is as high as 57 per cent, when it comes to refined petroleum products, the share of trade in total global production is about 22 per cent (Table 4.1), demonstrating that consuming countries prefer importing crude oil to importing refined products. The prices of all three energy products, oil, gas and coal, were more or less stable from 1992 to 1998. In fact prices showed a declining trend during this period. They increased for two consecutive years and again showed some stability till 2003. However prices zoomed thereafter (Figure 4.1). The price of crude oil fell from $35.95 per barrel in 1980 to just $14.17 in 1986. Prices then rose substantially in the wake of the Gulf War and reached $22.99 in 1990 before falling again to as little as $13.08, the lowest price for a long period (IEA 2007). While prices did show a moderate increase till 2003, the next three years saw sharp increases, unprecedented over the last two decades. The price of natural gas has more or less followed that of crude oil for a long time, but over the last few years it has been moderate compared to oil. In the case of coal however, the price increase has been more or less stable excepting a moderate rise in 2003 (Figure 4.1). One important aspect of price or market behaviour of energy commodities is that they have been quite different for different commodities. As we just discussed, coal prices have moved in very different ways from those of oil and gas. In the case of natural gas it has been different across regions as well. The natural gas markets in particular have shown interesting developments. The global gas market can be segmented from two perspectives: mode of transportation and geographical region.

Figure 4.1 Price indices of commodity fuel, crude oil, natural gas and coal (1995=100). (Source: IMF (2006.))

Trading in the world energy market 55

Figure 4.2 Price indices of natural gas in different markets (1995=100). (Source: IMF (2006.))

If one compares the three main markets, those of the United States, Europe and Japan, the price increases in the United States have been sharp and unstable with wide fluctuations, while in Japan the price rise has been most the modest and least fluctuating. Europe falls between Japan and the United States (Figure 4.2). Interestingly, as far as the mode of transportation of gas is concerned, Japan is entirely dependent on LNG, while the US and European imports are overwhelmingly dominated by transportation through pipelines. This implies that prices of LNG have seen less rise and less fluctuation compared to gas transported through pipelines. Import of LNG has always been considered an expensive option compared to import of gas through pipelines. However, by the end of 2005, the price of gas imported as LNG became comparable to that imported through pipelines in the European markets and much less than the prices of gas imported through pipelines in the United States (Figure 4.2). This could be partly because the costs of liquefaction and re-gasification, which are important processes in the transportation of gas as LNG, have gone down as a proportion of the ‘basic price’ of gas, due to improvements in technology as well as a rise in the basic price of gas itself. It could also be due to the fact that while pipeline gas trade occurs between fixed parties, in LNG there could be options for alternative buyers and sellers, allowing some scope for competitive market mechanisms to work. It is also interesting to note that the price of gas moved hand in hand with that of oil for some time (till about 2003), but parted with oil prices afterward. This could be because of geopolitical reasons. The importance of the West Asian region as a source of oil is much greater than for natural gas. Major exporters of gas are much

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more dispersed and hence a disturbance in West Asia creates much less impact on the gas price. Nevertheless, because gas is at least a partial substitute for oil, a hardening oil price has led to hardening gas prices as well. The price of coal has not been affected much as it is a poor substitute for oil and gas and also because West Asia does not export coal.

The future scenario The moot issue in the global market for energy is whether current high prices will continue or whether they will come down.4 It is indeed difficult to answer this question. But before one can even start answering this, it is important to answer another fundamental question: what determines the price of oil? In the 1970s, the conventional answer to this question was ‘OPEC’. Similarly, since the 1980s, the answer to this question has increasingly become ‘the market’. Unfortunately, it was never clear exactly how far OPEC determined prices in the seventies, nor is it clear whether only the market determines prices now. It is also a fact that OPEC continues to exist and plays a similar role even now, particularly on the supply side of the global oil market (Horsnell and Mabro 1993). Real world markets in this case do not behave in a way that some economists would like us to believe. Price formation thus involves more than just demand and supply in the market. In the present context, several reasons have been advanced for price increases. One of them is the rising demand, particularly due to rising consumption of oil in China. Other reasons that have often been cited include perceptions about ‘peak oil’, and geopolitical events like the war in Iraq and violence in Nigeria, as well as the increased activities of speculators, including the role of hedge funds in the futures market (Cantrel 2006, Brodrick 2007). However, it would be interesting to look at the structure of the global energy market before looking at the other issues.

Market structure The structure of the global markets for energy products throws some light on likely price scenarios (Table 4.2). Though market structure is normally understood from the number of firms and their relative position in the market, in terms of energy products it would be more appropriate to look at the relative position of producing or exporting countries, particularly because countries are known to use their sovereign power on production and export of energy products, especially oil. In any case, about 90 per cent of world reserves are controlled by state-owned oil companies, as opposed to market-driven public companies. Indeed, the largest independent oil company (IOC), Exxon Mobil, ranks only fourteenth on the list of proven reserve owners, behind a long list of state-owned oil companies (CFR 2006, Miller 2007). The United States and Russia are the only two countries which are both major producers and consumers in all the three energy products. However, the basic difference between them is that Russia produces much more than it consumes and

Trading in the world energy market 57 Table 4.2 Major exporters and importers of oil, gas and coal – 2005 (in order of their share in global exports/imports) Crude Oil

Gas

Coal

Exporters

Importers

Exporters

Importers

Exporters

Importers

S. Arabia

US

Russia

US

Australia

Japan

Russia

Japan

Canada

Germany

Indonesia

Korea

Iran

China

Norway

Japan

Russia

Taiwan

Nigeria

Korea

Algeria

Italy

South Africa UK

Norway

Germany

Netherlands

Ukraine

China

Germany

Mexico

India

Turkmenistan France

Colombia

India

Venezuela

Italy

Indonesia

Spain

US

China

UAE

France

Malaysia

Korea

Canada

US

Kuwait Canada

Netherlands Spain

Qatar US

Turkey Netherlands

Kazakhstan Vietnam

Russia Italy

Source: IEA (2007).

hence is a major exporter in all the three products, but the US consumes much more than it produces, particularly in oil and gas. For example, in 2005, with a share of 7.9 per cent in global production, the United States was the third largest producer of crude oil after only Saudi Arabia and Russia, yet it was the largest importer of crude with a 25.8 per cent share in global imports (IEA 2007). China is a major producer as well as consumer of both oil and coal. India is a major producer and consumer only of coal. Overall, however, the major consuming nations and the major producing nations are, more or less, different groups of countries (Table 4.2). Energy products are also necessary goods. Thus, they become extremely important commodities in international trade. The major buyers of energy commodities are also quite common across all three commodities (Table 4.2). There are just 13 countries that share the top ten positions across all three commodities. Comparatively, the sellers in the global energy market are more dispersed, as there are 23 countries that share the top ten positions in the three commodities. The major exporters of energy commodities, except Norway and Canada,5 are all from the developing world, while the major importers, except China and India, are all from the developed world. The entry of China and India into the global energy trade as major buyers, however, is a recent development. While India has, all along, been highly dependent on foreign energy (oil), China became a net importer of oil only in 1993. But both became among the major buyers only around the turn of the century. Market concentration measures generally try to capture the market power of firms by looking at indices based on market shares of individual firms. But as explained before, in the present context, it would be worthwhile to look at shares of production of individual countries in total global production as well as share

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of exports of individual countries in total global trade. Since all these products are finite resources, reserves are another important aspect to examine. Two measures of concentration are derived for this analysis – four-country and eightcountry concentration ratios, estimated as the combined share of the top four or eight countries in production, export and reserves (see Table 4.3). It is believed that the greater the concentration, the higher will be the upward pressure on price, following the structure-conduct-performance (SCP) paradigm of industrial economics (Scherer and Ross 1990). Currently, oil seems to be the least concentrated market compared to natural gas and coal both in terms of production and exports. When it comes to reserves, the picture however changes. While coal remains the most concentrated market, the structures of oil and natural gas become comparable. In fact, in terms of the eightcountry concentration ratio, the oil market becomes more concentrated than natural gas. Iran has the second largest reserves of natural gas, yet it is not among the major (top ten) producers or exporters of gas. But it wants to enter the market in a big way. If that happens then it would definitely change market dynamics. Pressure of prices would be higher on oil than gas. Moreover, the reserves to production (R-P) ratio is lower in oil than in gas, implying that supply constraints are going to be more prominent in the oil market, putting further pressure on price. If, on the other hand, one considers OPEC as a single country, the picture changes totally. OPEC has a share of 43 per cent in global production, 51 per cent in global trade and a high 79 per cent in global reserves. The four-country concentration ratio for oil reserves, taking OPEC as a single country, is as high as 98.5 per cent. This shows the kind of pressure one can expect on the price of oil. OPEC does not control production of natural gas and their share of global production at present is only about 18 per cent. However, OPEC countries hold about half the global Table 4.3 Indicators of global market structure – 2005 Oil

Gas

Coal

Reserve-Production (R-P) Ratio

44.2

64.3

180

4-Country Concentration Ratio (Production)

38.2 (67.6)

49.5 (64.3)

77.9

8-Country Concentration Ratio (Production)

55.4

61.4

92.0

4-Country Concentration Ratio (Exports)

39.9 (74.0)

54.4

63.3

8-Country Concentration Ratio (Exports)

59.2

74.5

89.4

4-Country Concentration Ratio (Reserves) 8-Country Concentration Ratio (Reserves)

53.5 (98.5)

62.2 (82.6)

67

79.7

74.4

–

Source: IEA (2007) and EIA (2006). Note: Figures in the parentheses are concentration ratios considering OPEC as a single country.

Trading in the world energy market 59 gas reserves. If OPEC becomes active in the area of natural gas as well, its impact could be significant though less than that in the oil market. As with current production and exports, concentration is very high in coal reserves as well, implying that the suppliers will have high market power in the long run. As of now such global market structure is not reflected in the price of coal as it is not widely traded and countries are producing it mostly for domestic consumption. It is also interesting to note that countries with high reserves or production are not the major exporters of coal. One positive aspect of the coal market is that the current R-P ratio is quite high: almost four times that of oil and three times that of gas. It may, however, be noted that a significant component of the coal reserve (21 per cent) is of a lignite type which is not easily tradable.6 Moreover, while historically world reserves for oil and gas (more so for gas) have seen upward revisions, in the case of coal revisions have been downward.

Demand–supply gap While, on earlier occasions of high oil prices, supply shocks were the primary reason, current high prices are largely due to high demand. So much so, that spare capacity in the production of crude oil as well as in refining has been almost eroded. According to the IEA, a ‘comfortable’ level of spare global capacity7 would be five or six million barrels per day, but currently the spare capacity is less than three million barrels per day and about half of that is in Saudi Arabia (Brodrick 2007). A related factor often cited is the falling value of the dollar. Since the price of oil in the global market is denominated in dollars, depreciating dollars means cheaper oil and higher consumption for countries where the domestic currency has been appreciating vis-à-vis the dollar (Chandrasekhar and Ghosh 2008). The growing demand for oil in China is one of the possible reasons for price increases globally, but it cannot be the only major reason. China turned to being a net importer of oil from being a net exporter in 1993. Since then it has been importing more and more oil. Yet the price of crude oil continued to fall till 1998. For the next five years the price of oil showed an upward trend, but the increase in prices was not as great as we find today. The year 2003 was the time when there was a violent break from the trend (Figure 4.1). This was also the year when the Iraq war was launched. It may also be noted that a substantial price increase was observed in the oil market even at the time of the first Gulf War, launched in 1989. But that price increase was more temporary and the price of oil in 1998 was lower even than the price level of 1988.

Peak oil A study by Douglas-Westwood Ltd, the World Oil Supply Report, suggests that the world is drawing down its oil reserves faster than ever. At the beginning of 2003, 99 countries had produced oil or were expected to produce it in the future. Of these, 49, including the USA and Russia, are well past peak; 11, including the United Kingdom and Norway, are just beginning to see declining production; and

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12, including Australia and China, will reach peak soon. The rest will see peaks within the next 25 years. In non-OPEC countries as a whole production is expected to begin declining soon. It is expected that by the end of the decade, OPEC will need to be in a position to increase its output by over 50 million tonnes per year, every year, just to offset declines in non-OPEC output and maintain current levels of production. Even the major oil companies have been downgrading their reserve estimates. They have also failed to add any major new finds over the last decade or so. Oil companies have reduced their exploration budgets by more than a quarter. Compare this with IEA’s calculations, that to meet the future demand by 2030, the required investment in oil exploration and production will be about $2.2 trillion (Fusaro and Vasey 2005).

Futures market The existence of a futures market has generally been considered helpful as it aids in price discovery as well as in the hedging of price risk. It is also often argued that the futures market can lessen variability in prices that might otherwise be present due to seasonal fluctuations in demand and supply. The oil market, however, is not subject to much seasonality. It is also argued that the existence of the futures market may even increase volatility in the market due to the speculative market operations of the non-commercial participants in the market. The number of non-commercial participants in the futures markets (including hedge funds), has grown alongside the volume of energy futures contracts traded. Indeed hedge funds now are more active in the oil and gas future markets than they used to be before 2003 (Fusaro and Vasey 2004). The volume of energy derivatives traded outside the traditional futures exchanges has also grown. In other commodities, such growth has been less dramatic. The average daily contract volume for crude oil as well as natural gas increased by 90 per cent between 2001 and 2006. There has also been a significant increase in the volume of energy derivatives traded outside exchanges, but this is difficult to quantify due to nonavailability of information. According to the Bank for International Settlements, the notional amounts outstanding of OTC commodity derivatives excluding precious metals, such as gold, grew by over 850 per cent (GAO 2007). Finally, the role of speculators in increasing prices in a market has received particular focus over the last few years. Some observers believe that large purchases of oil futures contracts by speculators have led to higher prices. There are others who believe that speculative trading cannot have a significant impact on prices in the long run, though it can contribute to short-term price movements. This, however, assumes that there is enough competition in the physical market. In the absence of competition, firms rarely lower prices, even when production costs decrease or demand falls. They are more likely to hold prices constant, while cutting production, than to lower them. Therefore, prices are sometimes observed to be ‘sticky downward’. Indeed there is hardly any reason to believe that the oil market is competitive and there are several theoretical as well as empirical

Trading in the world energy market 61 studies that indicate that oil prices may be sticky downward (Davis and Hamilton 2003). In such a situation, speculators’ activities influence prices to move upwards disproportionately more than they influence downward movements. This may well be the reason that the price rise during the second Gulf War has been much sharper than the price rise in the first Gulf War. It should also be noted that speculators need a reason to go bullish. The Iraq war could have provided that reason. Moreover, continued violence in Iraq and uncertainty over Iran may have convinced speculators to hold on, leading to persistently rising prices.

Conclusion In view of these considerations, while oil prices may soften if there is an improvement in the geopolitical situation, it is unlikely that such a shift will be marked. Even though the instability in Iraq is unlikely to have too strong an impact on oil prices as time goes on, the continued uncertainty over Iran is sufficient reason to convince speculators to remain active in the oil and gas futures market. Also, even if the Iran tension gets diffused soon, it is unlikely that oil prices will get back to 2002 levels. It is more likely that prices will gravitate towards the trend that was set in 1998. In other words, the price of oil is likely to show an upward trend. The economic recession in the United States in recent months has led to some slackening in the oil market. Nevertheless, it is unlikely that there could be a drastic fall in prices, unless of course, the global economy goes into a severe recession. It is also now impossible for India to get cheap oil and gas. What China could get from Angola and Australia, and India could get from Qatar, are things of the past.8 India’s energy security vitally needs a smooth flow of energy products from abroad. Historically, a physical disruption of supply has never occurred. But financing a huge energy import bill is an issue. It may be noted in this context that the economic crisis of the early 1990s in India was precipitated by its inability to finance such an import bill as there was not enough foreign exchange in the country. Thus overall export performance is also a crucial element in India’s energy security. A recent study has shown India to be the third most oil-vulnerable country – and that is primarily due to India’s lower ability to pay (Gupta 2008). Currently, India’s merchandise trade deficit is quite high and growing – hovering around seven per cent of GDP. This does not augur well for the country. Thus, India needs to improve its export performance. Participation of Indian energy companies in the futures market can, to some extent, help these companies to hedge price risks. But much should not be expected from this, not just because taking part in the futures market itself is not free from risks, but also because futures prices prevailing now are at high levels. Promotion of a futures market for energy products in India is also unlikely to help much as prices will, by and large, be determined by what happens at other major global futures markets rather than in India. However, stronger linkages with the energy supplying nations could provide an incremental boost to exports, apart from a greater assurance of supply. Optimising the energy-use mix in the country on the basis of future scenarios

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in different energy products in the global market is therefore a policy imperative. India currently has high dependence on oil and coal but very little use of gas. Obtaining oil has always been a problem for India, but much greater imports of coal in the future will also have their own problems. Given this India must explore the option of increasing the use of gas. Apart from bringing greater balance to the energy-use mix, it could also prove to be prudent as in the long run importing natural gas could be a better option than importing oil or coal. Since India’s room to manoeuvre in the global energy market is quite small, the country must try hard to reduce its dependence on foreign energy. Harnessing the potential of renewable energy not only in its own territory but also its neighbouring countries is a good strategy, not just for India but the South Asian region as a whole (Nanda and Goswami 2008). And of course, the importance of improving energy efficiency can hardly be overemphasised in this context.

Notes 1 The paper draws heavily from the work done under the project titled ‘Building an Energy Secure Future for India through a Multistakeholder Dialogue Process’ supported by the Nand and Jeet Khemka Foundation. 2 This includes a tentative estimate of newly found reserves at Barmer in Rajasthan reported to be about 2.5 billion barrels or about 350 Mt. 3 Geologists have predicted large amounts of undiscovered oil and gas in India, a view that has been reinforced after the discovery of oil in Rajasthan and the discovery of gas in Krishna-Godavari basin. Nevertheless, as of now, Indian reserves in both oil and gas are less than one per cent of global reserves. 4 It may be noted in this context that the real price of oil at present is still lower than its 1986 level. 5 In gas, the United States is the tenth largest exporter, but this is because of its special arrangement with Canada, while in coal, both Australia and the United States are among the ten largest exporters. Trade in coal, however, is much less significant than trade in oil and gas. 6 Now, with the availability of technology, even lignite is tradable to some extent. 7 According to IEA, spare petroleum capacity is the capacity that can be turned on for 30 days and sustained for 90 days. 8 Angola committed to supply China with 200,000 barrels per day of crude at $60/barrel for 10 years. It also secured a $25 billion contract from Australia in 2002 for supply of LNG for 25 years at a fixed price. India has been receiving gas from Qatar at a price of $3.88/m BTU, which is quite cheap.

References Brodrick, S., 2007. ‘Three triggers for higher crude oil prices.’ The Market Oracle, 13 Jun, 2007 viewed 5 April, 2008 . Cantrel, A., 2006. ‘The blame game: hedge funds and oil.’ Viewed 5 April 2008, <money. cnn.com/2006/04/26/markets/hedge_oil/>. CFR, 2006. ‘Report of the Independent Task Force on the National Security Consequences of US oil dependency.’ Sponsored by the Council on Foreign Relations. Washington DC: Council on Foreign Relations. Chandrasekhar, C. P. and Ghosh, J., 2008. ‘Oil prices and the dollar.’ The Hindu Business Line, 26 February.

Trading in the world energy market 63 Davis, M. C. and Hamilton, J. D., 2003. ‘Why are prices sticky? The dynamics of wholesale gasoline prices.’ NBER Working Paper 9741. Cambridge, MA: National Bureau of Economic Research. EIA, 2006. International Energy Outlook 2006, Washington DC: US Energy Information Administration. Fusaro, P. C. and Vasey, G. M., 2004. ‘Energy hedge funds: why have they appeared now?’ Commodities Now, December 2004, viewed 5 April, 2008 <energyhedgefunds.com/ehfc/ modules/articles-4/content/Hedge_Funds_CN.pdf>. Fusaro, P. C. and Vasey, G. M., 2005. ‘Hedge funds change energy trading.’ Occasional Paper 39. Boulder: International Research Center for Energy and Economic Development. GAO (US Government Accountability Office), 2007. ‘Energy derivatives: preliminary views on energy derivatives trading and CFTC oversight.’ GAO Report Number: GAO07-1095T. Gupta, E., 2008. ‘Oil vulnerability index of oil-importing countries.’ Energy Policy, 36(3), pp. 1195–1211. Horsnell, P. and Mabro, R., 1993. Oil markets and prices. Oxford: Oxford University Press. IEA, 2007. Key energy statistics 2007. Paris: International Energy Agency. IMF, 2006. World Economic Outlook 2006. Washington DC: International Monetary Fund. Miller, D., 2007. ‘Will “private” oil sink the NYMEX?’ Investment U Research Report. Baltimore: Investment U Research. Nanda, N. and Goswami, A., 2008. ‘Energy cooperation in South Asia: Prospects and Challenges’, Man and Development, 30(1) 109–120. Planning Commission, 2006. Integrated energy policy: Report of the Expert Committee, New Delhi, Government of India, Planning Commission. Scherer, F. M. and Ross, D., 1990. Industrial market structure and economic performance. Boston: Houghton Mifflin Company. TERI, 2006. National energy map for India – technology vision 2030. New Delhi: The Energy and Resources Institute and TERI Press.

5

Geopolitics of West Asian and Central Asian oil and gas Implications for India’s energy security1 Talmiz Ahmad

Energy security A one-line definition of ‘energy security’ might be: an assured access to energy resources, at affordable prices, to obtain sustainable economic growth rates and economic development. Most of the world’s energy comes from hydrocarbons (oil and gas), which account for 65 per cent of the world’s energy requirements. While oil accounts for 42 per cent of the global energy mix, the other sources of global energy are coal (24 per cent), natural gas (22 per cent), nuclear energy (6 per cent) and renewable and non-conventional sources (7 per cent). World energy demand has increased by 95 per cent over the last 30 years and is expected to rise by 60 per cent over the next 20 years. During this period, the demand for oil will increase by 42 per cent, while the demand for gas will increase by 97 per cent. In recent years the most significant development in the consumption of hydrocarbon fuels is the increase in Asian demand. The anticipated rise in Asian demand in comparison with other regions is illustrated in Table 5.1, depicting the oil scenario in 2025. Table 5.1 Global oil demand forecast: 2025 [in million tonnes per year] 2001

2025

Asia: Big (4)**

946.2

1842.6

Rest of Asia

298.8

547.8

Middle East

249

448.2

North America

1195.2

1743

West Europe

697.2

697.2

Rest of world TOTAL

448.2 3834.6

647.4 6025.8

Source: McKinsey 2005: 83. **China, Japan, RoK and India Note: Estimates of oil and gas reserves and projections of future demand and supply vary considerably between different source materials.

Geopolitics of West Asian and Central Asian oil and gas 65 The significant change in global hydrocarbon consumption patterns is that, as against earlier years when the bulk of Asian production was consumed in West Europe and North America, today Asian countries are increasingly emerging as the principal consumers of Asian production – 55 per cent of Asian crude is being currently consumed in Asia and 95 per cent of Asian gas is being currently consumed in Asia (Mckinsey 2005: 82). Along with oil, natural gas will play an important role in Asia’s energy demand. Natural gas, being a ‘clean’ fuel (compared to coal), is increasingly seen as the fuel of the 21st century. At present, Asia has a much lower share of gas demand than the world average, (6 per cent versus 12 per cent). To meet Asia’s rapidly increasing energy requirements, demand for gas will increase significantly (Table 5.2). Meanwhile, the bulk of Asian demand in 2025 will be met by imports, as brought out in Table 5.3. This chapter highlights the importance of West and Central Asia in the context of global demand for oil and natural gas. These regions are vital partners in India’s growth and thus the energy scenario in West and Central Asia is key to appreciating Table 5.2 Asian gas demand (in billions of cubic meters (bcm)) Country

2006

2015

2025

ASIA: Total

336

504

1036

China

56

70

280

Japan

84

112

140

RoK

28

84

196

India

42

56

84

Pakistan

28

28

56

Taiwan

28

28

70

Thailand Turkey

42 28

56 56

112 98

Source: Ernst & Young 2006: 94.

Table 5.3 Global oil import forecasts: 2025 (in million tonnes per year) Region/Country (% oil imported)

Total imports

Net increase in imports

Asia (74%)

1444.2

597.6

China (71%)

547.8

298.8

India (87%)

199.2

134.46

Japan (100%)

149.4

–84.66

RoK (100%)

124.5

29.88

Europe (80%) USA (72%)

622.5 871.5

119.52 199.2

Source: PEL 2006: 84.

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some of India’s energy security concerns. This chapter will also discuss some of the strategies India has adopted to enhance its energy security, including importantly, a multifaceted and robust energy diplomacy. More fundamentally, we underline the underlying philosophy and perceptions of India’s energy security and its inherently cooperative approach. As part of this we focus on the core attributes of India’s engagement with both West and Central Asia. This engagement has occurred against the backdrop of India’s enduring interests in West Asia and is expanding in political and economic terms. We also highlight the nation’s larger geopolitical interests in Central Asia. Beyond the West and Central Asian region, we look at India’s efforts at the multilateral level to address its energy security, at forums such as the Shanghai Cooperation Organization, the Asian Producer-Consumer Dialogue and so on. We conclude by highlighting some considerations India must keep in mind while striving to enhance its energy security vis-à-vis West and Central Asia, such as the political instability in Iraq, the Caspian Sea’s legal status and the need to engage other players present in the energy sector in the two regions.

West and Central Asia in the global energy supply scenario West Asia The Gulf provides the bulk of the world’s oil: just five countries of the Gulf (Saudi Arabia, Iraq, Iran, Kuwait and the UAE) have about 65 per cent of the world’s reserves. The Gulf has proven reserves of 92 billion tonnes of oil, and production capacity of 1110.5 million tonnes a year; uniquely, it also has over 90 per cent of the world’s excess production capacity.2 Imports from West Asia have been significant in the global oil trade (Table 5.4). Production costs in Gulf OPEC nations are less than $3 per barrel (one metric tonne is equivalent to about 7.3 barrels and thus this cost works out to about $22 per tonne), and the capital investment required to increase production capacity by one barrel per day is less than $5,940. This may be compared with a capital investment of $10,000– $12,000 needed to produce one barrel per day outside the Gulf region (Janabi 2004). Thus Gulf OPEC producers can expand capacity at a cost that is a relatively small percentage of projected gross revenues. According to the International Energy Table 5.4 Oil imports from the Gulf (%) Year

USA

West Europe

Japan

% of total demand

% of total* % of total imports demand

% of total* % of total imports demand

% of total* imports

1990

11.3%

28%

29%

45%

66%

65%

1995 2000

9% 12.6%

20% 24%

23% 21%

44% 42%

79% 75%

70% 75%

Source: Fesharaki 2005: 101.

Geopolitics of West Asian and Central Asian oil and gas 67 Agency (IEA), the Gulf region’s oil production capacity, between 2005 and 2030, would expand from 27 MBD to 45 MBD (1,344 to 2,241 million tonnes per year). The region would then represent 40 per cent of the world’s oil supply, and would account for three-fourths of additional global supply from 2000–2030 (ECSSR 2007). The principal sources of global gas also lie in Asia. The Asian area of Russia (North Asia) has 27 per cent of the world’s proven reserves, followed by Iran (15 per cent) and Qatar (14 per cent). In fact, North and Central Asia and the Gulf between them have over 70 per cent of world reserves (Table 5.5). Central Asia and the Caspian Sea region The area around the Caspian Sea has shown evidence of oil resources for at least two millennia. The Caspian region is abundant in oil resources and as per EIA data, the total proven oil reserves in the Caspian Sea region ranges from 2,320 to 6,683 million tonnes and total proven natural gas reserves are estimated at 6,496 billion cubic meters (EIA 2007). This amounts to four per cent of the total oil reserves of the world and five per cent of the total gas reserves. While there is considerable international focus on Central Asian hydrocarbon resources, it is important to recognize their limitations both in terms of quantity and accessibility. This is illustrated in Table 5.6, comparing Gulf and Central Asian reserves and projected production. While the Caspian area is not at the level of West Asia as a source of supply, it is important to the energy policy of many nations because of its position as a significant and alternative source of oil and gas supply to the West Asian region.

India’s energy scenario Hydrocarbon Vision 2025, published by the Government of India in February 2000 (GOI 2001), set out in stark terms India’s energy security predicament: its crude oil self-sufficiency had declined from 63 per cent in 1989–90 to 30 per cent

Table 5.5 Global gas reserves (in trillions of cubic metres) Region

tcm

Russia/Central Asia

53.2

West Asia Africa

56 11.2

South & South East Asia

8.4

North America

5.6

South/Central America

5.6

Europe Australia

4.2 2.8

Source: Ernst & Young, 2006: 94.

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T. Ahmad

Table 5.6 Gulf and Central Asian oil and gas reserves Gulf (A) Oil

(B) Gas

Central Asia

(a)

proven reserves

92350 Mt

2182 Mt

(b)

% of global reserves

65%

1.5%

(c)

undiscovered reserves 27825 Mt

4678 Mt

(d)

% of global reserves

28.2%

4.7%

(a)

proven reserves

52 tcm

7.42 tcm

(b)

% of global reserves

34.4%

4.9%

(c) (d)

undiscovered resources 35 tcm % of global resources 23%

10.2 tcm 7%

Source: Abi-Aad 2002.

in 2000–01. The situation is likely to get worse in the future and is equally grim in the case of natural gas. The Integrated Energy Policy document published by the Planning Commission in August 2006 takes a holistic view of India’s energy requirements needed to meet a minimum growth rate of eight per cent per annum until 2031–32, i.e., the end of the 15th Five Year Plan. The Planning Commission has pointed out that, given the country’s commitment to eradicating poverty and empowering its people with education and health, rapid growth rates of around eight per cent per annum over the next 25 years are essential to attain these goals. In order to fuel a sustained annual growth rate of over eight per cent, India would need to ensure that basic capacities in the energy sector and related physical infrastructure, such as rail, ports, roads and water, grow by factors of three to seven times by 2031–32, alongside a 20-fold increase in nuclear and a 40-fold increase in renewable energy (Planning Commission 2006). In all scenarios, fossil fuels will be between 74 per cent and 85 per cent of India’s energy mix, as against 96 per cent at present. Taking into account the energy requirements detailed by the Planning Commission, efforts at enhancing India’s energy security can be outlined as follows: • • • • •

augmenting domestic resources maximizing the use of the national hydropower potential obtaining the materials and technology to pursue civilian nuclear power projects pursuing energy efficiency and demand side management policies, and diversifying energy sources through increased use of renewables.

Given the high level of dependence on imports and the need to obtain internationally developed technologies to enhance the country’s domestic resources and capabilities, India has committed itself to pursuing a robust ‘Energy Diplomacy’. This consists of substantial, pro-active and multifaceted engagements across the

Geopolitics of West Asian and Central Asian oil and gas 69 world to promote India’s energy security interests. The overseas engagements are aimed at achieving the following. •

•

• • • •

•

Significant enhancement of domestic resources and capabilities by bringing in state-of-the-art foreign technology and expanding the national knowledge base. Acquisition of assets abroad, involving either equity participation in producing fields; and/or exploration and production (E&P) contracts in different parts of the world, both onshore and offshore. Participation in downstream projects (refineries and petrochemicals) in producer and consumer countries on the basis of criss-cross investments. Finalization of long-term LNG contracts. Setting up of transnational gas pipelines. Obtaining technologies to promote sustainable energy use, including conservation, increased use of environment-friendly fuels, and development of unconventional and non-conventional energy resources within the country. Promotion of intra-Asian dialogue between producers and consumers, encouragement to intra-Asian investment, and development of Asian capabilities, resources and infrastructure.

India’s perceptions of energy security India does not see the pursuit of its own or the Asian and global energy security interests in competitive terms and in terms of conflict. It is true that given the central role that energy security plays in the national development of a country, it has to be seen as an integral part of the national security of the country concerned.3 However, while national security has at its core the maintenance of a country’s national interest, energy security cannot be attained on a purely national basis; it is inherently cooperative in character and is founded on engagements with other countries, especially given that hydrocarbon resources will continue to dominate the global energy mix (and, hence, the energy mix of most countries) for at least the next 25 years, if not longer. For the world’s energy resources to be harnessed efficiently, a cooperative approach at bilateral, regional and international levels is both inevitable and urgent. India’s commitment to a cooperative approach in the pursuit of energy security interests is strengthened by the realization that the next few years will see a steady decline in oil supplies, with consequent implications for prices, economic programmes and increased political contentions. Though advances in technology will provide the hydrocarbon resources required to meet global demand, at least over the next 30–50 years, new oil will be available in physically challenging areas such as the deep sea or frozen terrain or environmentally sensitive locations. Again, this will require huge investments for its extraction, amounting cumulatively to about $5 trillion up to 2030, at the rate of $20 billion per annum. Meeting the global demand for oil and obtaining the financial resources to ensure supplies requires the rejection of political contentions based on narrow national considerations and,

70

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in their place, calls for an integrated regional and global effort to pool together the world’s human, financial and technological resources in a spirit of cooperation for mutual benefit.4 In line with these perceptions, India’s energy diplomacy seeks to pursue engagements at bilateral, regional and global levels to promote corporate joint ventures and government-to-government partnership to encourage dialogue and the realization of mutually beneficial outcomes. At the same time, India remains conscious of the strategic dimensions arising out of the pursuit of energy security interests by different stakeholders, and, through its bilateral and regional engagements, has been attempting to ensure that its broad national interests are safeguarded. The Gulf and Central Asia have a crucial place in the pursuit of India’s energy security interests. Both these regions attract considerable international attention on account of their significant hydrocarbon reserves. It is therefore not surprising that both regions are politically volatile in terms of their internal situation and as a result of the interplay of external forces that are competing in these regions for power and influence. India’s long-term interests lie in setting up alliances and partnerships, particularly in the Gulf and Central Asia, that would bring together different capabilities through joint proposals. This cooperation ranges across the hydrocarbon value chain, and includes prospecting in each other’s territories, and exchanges in regard to R&D, technology, safety norms and training. Beyond the bilateral aspect, it includes the possibility of Indian and foreign national companies working together on specific projects in third countries.

India’s energy diplomacy in the Gulf and Central Asia The Gulf region provides two-thirds of India’s oil requirements. From amongst these countries, Saudi Arabia is India’s largest supplier of crude oil, meeting 25 per cent of its annual requirements. Following the visit to India of King Abdullah bin Abdul Aziz in January 2006, the two countries have agreed to transform their present commercial ties into a ‘strategic energy partnership’ through investments in each others’ downstream and petrochemicals projects, as also through India’s participation in Saudi Arabia’s upstream proposals in the gas sector.5 Besides Saudi Arabia, Iran is India’s other major energy partner in the Gulf; it is the third largest supplier of oil to India (at 2.5 Mt/year, after Saudi Arabia and Nigeria), and is emerging as an associate in a number of hydrocarbon related projects, particularly in the gas sector. Other major partners of India are the U.A.E., Kuwait and Oman, with Qatar emerging as an important source of gas. In an effort to diversify its energy partners, India has in recent years turned its attention to Central Asia and Turkey. In 2005, the Indian Petroleum Minister made highly publicized visits to Kazakhstan, Azerbaijan and Turkey, which led to the finalization of a comprehensive programme of bilateral and regional cooperation in the hydrocarbon sector. In Kazakhstan, Indian companies are pursuing E&P proposals in the Caspian, while Azerbaijan and Turkey are emerging as partners in the gas pipeline sector in the execution of pipeline projects from Central Asia

Geopolitics of West Asian and Central Asian oil and gas 71 to Europe. Indian and Turkish companies will also cooperate in executing projects in their own countries and in third countries. The possibility of purchasing Azeri oil at Ceyhan was also examined: this led to the first shipment of Central Asian oil to India, in late 2005. India and the Gulf India has enduring interests in the Gulf and the Arab Peninsula. The region is part of India’s security perimeter and developments in the region have a direct bearing on India’s strategic and security interests. Additionally, the Gulf and Arab Peninsula are the principal source of India’s crude oil requirements, providing over two-thirds of annual imports. Thus, the security of oil facilities and of the sea lanes is a crucial element in India’s long term energy security interests. The region is also a major economic partner and a market for Indian goods, a partner in joint ventures and technology transfer arrangements, and a principal source of remittances from the resident Indian community. Between 2001 and 2006, India’s total non-oil trade with the GCC countries rose three-fold – from US$5.55 billion in 2000–01 to US$16.35 billion in 2004–05, due to buoyancy in both exports and imports (Exim Bank 2006). In 2006–07, India-GCC two-way non-oil trade was $47.4 billion. Concerns relating to the welfare of India’s fourand-a-half-million strong Indian community also require that India maintains the closest possible political ties with the countries of the region. From the late 1990s, there has been an increasing recognition in the Gulf of India’s political and economic strengths based on the consolidation of the country’s democratic and multicultural order, its high growth rates and its firm technological base, all of which have helped convince the GCC countries that India was poised to play an enhanced regional and even international role in the economic and technological arena. These perceptions led the GCC Foreign Ministers to invite India as a dialogue partner, only the fourth after the United States, European Union and Japan. Following this, the first GCC-India Industrial Conference was held in February 2004, when six Commerce and Industry Ministers from the GCC countries, and the then Indian Minister for Commerce and Industry, agreed, through the ‘Mumbai Declaration’ to enhance economic cooperation by focusing on four select priority areas: trade; investments; industrial cooperation including small and medium enterprises (SMEs)/small scale industries (SSI); and transfer of technology including information technology. India has also engaged with specific Gulf countries in high-value joint projects such as the billion-dollar Oman-India Fertilizer Project and the agreement with Qatar to purchase LNG over the next 25 years. Besides these mega-contracts, Indian companies have significantly expanded their economic presence in the region not only through enhanced trade activity but also through several joint ventures in industrial production, consultancy, information technology, engineering, management and accountancy services. These expanded economic ties have moved along with enhanced political links. Commencing with the visit of the then Indian External Affairs Minister, Jaswant

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Singh, to Saudi Arabia in January 2001, there has been a steady expansion in high-level political and economic dialogue. Between 2005–08, the Heads of State/ Government of every one of the six GCC countries visited India. The sinews of the relationship are being strengthened with regular meetings of the bilateral Joint Commissions and Foreign Office Consultations, along with discussions in regard to agreements in the economic, civil aviation, health, education, security and criminal areas. India and Central Asia The former Indian Foreign Secretary and National Security Adviser, J N Dixit, in November 2003, succinctly set out what should constitute the main elements of India’s relations with the Central Asian countries (Dixit 2004). •

•

•

• • •

India has to undertake an attitudinal change towards Central Asia. It must, as it has focused attention on the Association of Southeast Asian Nations (ASEAN) countries, perceive the Central Asian countries as an integral part of its neighbourhood. India’s policies towards Central Asia should be predicated on the perception that multifaceted relations with Central Asia are essential for the security and stability of the integrated strategic region extending from the northern limits of the Central Asian Republics to the southern extremities of the South Asian region. India must be more active in associating with new economic cooperation and regional security arrangements which are being initiated by the Central Asian Republics. India must actively pursue the establishment of economic, technological and defence-supplies cooperation with these countries. These efforts of India must be backed up by substantive programmes and projects of educational, cultural, and scientific and technological cooperation. India should enhance air connections with Kazakhstan and Uzbekistan.

Since the emergence of the Karzai-led government in Kabul, India’s focus on Central Asia has shifted from security to business. India’s total bilateral trade with the region is now about US$300 million per annum, primarily dominated by trade ties with Kazakhstan.6 In spite of considerable effort over the last few years, India’s presence in the Central Asia energy sector remains modest. It is limited to a 15 per cent holding by ONGC Videsh Limited in Kazakhstan’s Alibekmola oil field and a 10 per cent holding in the country’s Kurmangazi field. Recently, the Indian company, Gas Authority of India Limited (GAIL), has been awarded two fields for exploration of gas in Uzbekistan in April 2007. Besides commercial interests in Central Asia, India continues to have political and strategic interests, centred around curbing the influence of Islamic extremism, particularly the influence of Taliban-related activities, and contributing to the maximum extent possible to a unified stable and peaceful Afghanistan. This Indian

Geopolitics of West Asian and Central Asian oil and gas 73 agenda finds a ready resonance among the Central Asian countries, which has led to a brisk exchange of high level visits and expanding political and economic ties. With Iran, there has been a regular exchange of visits between Indian and Iranian leaders. Indian Foreign Minister Pranab Mukherjee was in Iran on 6–7 February 2007, while the Iranian Foreign Minister had visited India in November 2006. Foreign Minister Mukherjee not only highlighted the importance of ties with Iran for India, he also described Iran as a factor for stability in the region. India has been vigorously pursuing the Iran–Pakistan–India gas pipeline project over the last two and a half years in spite of sustained US public criticism of the project and diplomatic demarches. In fact, this project could possibly include Russia and China as active participants: senior Russian officials and corporate heads have repeatedly indicated the interest of their companies in participating in the project. Chinese commentators have also publicly stressed the need for India and China to pursue their own linkages with Iran. According to Liu Xuecheng, director of the Beijing Centre for American Studies and a senior fellow of the China Institute for International Studies (quoted in Varadarajan 2006): The US is trying to coordinate with all countries around Iran in order to isolate it … . India and China have good relations with the US but must follow their own strategy on Iran. If India gives up on Iran in the hope of securing nuclear energy from the US, it may end up with nothing. You would lose your strategic pipeline and the US might also abandon the nuclear deal at some point in the future. Pipelines from Iran and Central Asia are a strategic lifeline for Indian energy security.

India’s multilateral engagement and strategies Beyond the robust ongoing bilateral interaction based on high level visits, joint commissions and foreign office consultations and exchanges of economic delegations, India’s engagement with both the Central Asian region and the larger world is taking place at the multilateral level on a number of platforms. First among these is the Shanghai Cooperation Organization (SCO), where India has ‘Observer’ status. The SCO clearly provides a valuable institutionalized arrangement for Russia and China to ensure that their interests, in a region of considerable strategic and economic importance to them, are not abridged by expanding American influence. On their part, the Central Asian countries, too, see the Russian and Chinese presence as providing a valuable counterweight to the American influence, thus guaranteeing them much more autonomy. To quote from Roy 2006, the SCO essentially provides ‘a delicate equilibrium among the members in the post-Cold War geopolitical paradigm’. India has also been participating in the Trilateral India–Russia–China Dialogue on a regular basis since September 2002. Despite being a low-key affair, the regularity of the dialogue over the last five years at the Foreign Ministers’ level (and once at summit level) confirms that the three countries do attach considerable importance to it as a platform for a candid exchange of views on matters of common

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interest. The leaders of China, Russia and India had their first Trilateral Summit in July 2006 in St. Petersburg, on the margins of the G-8 Summit. In a briefing on the meeting, the Chinese Assistant Foreign Minister said that the three leaders had met at the Trilateral Summit because they saw it as ‘beneficial to boosting the cooperation among the three countries as well as maintaining multi-polarity, peace, security and development in the world.’7 Regional energy-related projects are another forum for greater cooperation within the region. India attaches great importance to gas pipelines from Central Asia. India is conscious of the fact that Turkmenistan–Afghanistan–Pakistan–India (TAPI) is an important project not just in terms of meeting Pakistani and Indian energy needs but also because it would provide Afghanistan with transit fees and possibly even the chance to develop Afghanistan’s own gas reserves in the Herat region. The project has considerable geopolitical significance in that, for the first time, South Asia would have access to gas from Central Asia. Once the pipeline is operational, it is possible that Turkmenistan could evolve from a single source of gas to the pipeline into a regional hub, with pipelines from neighboring countries, such as Uzbekistan, Kazakhstan, Azerbaijan and even Russia, linking up with the pipeline to meet the increasing demands of South Asia. In due course, pipelines from the Caspian could also go to LNG terminals on the Gulf to transport Central Asian LNG to South East Asia and North East Asia. The Iran–Pakistan–India (IPI) gas pipeline project has a sound commercial base as Iran has the world’s second largest gas reserves, particularly offshore in the South Pars and North Pars fields (which it shares with Qatar). A pipeline from the Iranian collection center of Assaluyeh on the Gulf to the Indian border would be about 1,900 km, which is well within the range of economical gas supply by pipeline vis-à-vis LNG. The main point to be noted is that the IPI project is not a trilateral Government-to-Government project; it would be owned by an international consortium made up of the national companies of the three countries concerned together with other international partners, possibly companies from China and Russia and the international mining giant, BHP-Billiton of Australia. The project would operate within the framework of international commercial law, reinforced by the trilateral ‘Framework Agreement’ and the three governments’ commitment to the provisions of the Energy Charter Treaty. The ownership of the project by an international consortium and the fact that Pakistan itself would be a major consumer of the gas would severely limit Pakistan’s ability to tamper with the pipeline. Another key forum for energy diplomacy is the Asian Producer-Consumer Dialogue. India took the first significant step in setting up a platform for dialogue between the principal Asian oil and gas producers and consumers when it convened a Round Table of Asian Oil Ministers in New Delhi, in January 2005. In his inaugural address, the then Indian Minister of Petroleum and Natural Gas, Mr. Mani Shankar Aiyar, noted that Asian producers and consumers would obtain stability, security and sustainability in the Asian oil and gas economy through mutual interdependence, which called for ‘mutual investments in each other’s countries by producer and consumer nations of the Asian oil community’. The Minister

Geopolitics of West Asian and Central Asian oil and gas 75 envisaged a future ‘in which Asian countries can become major participants in the massive investments which need to be made in the Asian countries represented at this table, running to an estimated 1,580 billion dollars over the next 25 years in upstream, midstream and downstream oil and gas development in all our countries put together’ (Aiyar 2005). Some of the agreements at the Round Table were the following: •

•

•

•

Asian cooperation in the oil and gas economy must include ‘moderation, dialogue, mutual understanding and respect, security of international supplies, demand-supply equilibrium, and strategic partnerships based on a reciprocity of interests’. Prices should be sustained at levels which encourage Asian consumers to increase their purchases of Asian produce; at the same time, prices should be such as to encourage Asian producers to promote investment in oil and gas for Asian consumer destinations as an economic priority. Crisscross investments all along the entire oil and gas products chain through reciprocal investment interlocking of producers and consumers will guarantee security of both supply and demand, thus contributing to stability of prices and thereby security of both supply and demand. The Round Table endorsed the importance of energy conservation for the protection of the environment and issues of climate change, and the need for technological cooperation in the pursuit of cleaner and more environmentally sound fossil fuel technologies.

A Second Round Table was held in New Delhi, in November 2005, when the representatives of the same four principal Asian consumer countries met Ministers from North Asia (Russia) and Central Asia. The assembled dignitaries agreed to study ‘the promotion of developing gas and oil interconnections through LNG and through transnational oil and gas pipelines within the Asian region for integration of energy markets as well as improving the transportation infrastructure’. While the world’s gas map depicts numerous pipelines moving across thousands of kilometres from Russia, Central Asia and the North Sea to Western Europe, hardly any pipelines move eastwards and southwards. The Asian Gas Grid envisages the setting up of a series of pipelines that will carry natural gas from North and Central Asia and the Gulf to various consumption centres in East and South Asia. Some of the principal pipelines in the proposed grid are the Russia–Kazakhstan–Iran pipeline to the Gulf, the Myanmar–China pipeline, the Sakhalin–Nakhodka– ROK–China pipeline, the Uzbekistan–Turkmenistan–Azerbaijan pipeline, the extension of the BTC pipeline from Ceyhan through Syria and Jordan to Egypt, the Iran–Pakistan–India pipeline, and the Turkmenistan–Afghanistan–Pakistan–India pipeline (Ernst & Young 2006: 90–102). According to current estimates, the additional pipelines required to realize the Asian gas grid would be about 22,500 km, costing about $22 billion. The Asian continent, particularly Russia, the principal Asian consuming countries, and the major producing countries of the Gulf are readily able to provide the financial and

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technological resources for this project. Besides contributing significantly to the growth and prosperity of the continent as a whole, the project would have other benefits such as developing the electricity, petrochemical and fertilizer industries; promoting trans-continental cooperation in trade and industry; upgrading local skills and expanding employment opportunities; and, above all, generating the resources that would enable Asian governments to fund their poverty alleviation and other welfare programmes. In simple financial terms, the total financial benefits in the first year of the project (2006) would be $1.5 billion. While the economic advantages of the gas grid are obvious, it has to be accepted that transnational pipelines are difficult and complex ventures, which are particularly daunting in an Asian environment that has been the theatre of considerable intracontinental discord and conflict, and has relatively few success stories in regard to regional and continental cooperation. At the same time, it should be noted that the international community, over the last 35 years, during which thousand of kilometres of gas pipelines have been laid across all our continents, has developed laws, rules, norms and practices that ensure that pipelines can be insulated to a considerable extent from the vagaries of day-today politics and made ‘safe and secure’on the basis of international best practice. Finally, recent efforts towards substantive reforms in the Asian oil market have also created a space for large consumers and producers of oil in Asia to work together. When the Asian oil ministers met in January 2005, Indian Petroleum Minister Aiyar pointed out that Asia was no longer a residual consumer of Asian oil production and yet Asia had little in terms of a global market, and even less in terms of a well-prepared oil and oil products market (Aiyar 2005). The assembled ministers were also conscious of the fact that the surge in oil prices over the previous year, even as it had adversely affected economies in different parts of the world, called for greater scrutiny of the organization and functioning of the world’s oil markets – their non-transparent and non-rational foundations and procedures. The need for reform was expressed strongly, particularly by developing countries that were seeing their hard-earned resources wither away and their development programs in jeopardy. The Japanese Minister of Economy, Trade and Industry called for the development of oil markets in Asian countries so that pricing mechanisms would emerge that would correctly reflect the supply-demand balance in the Asian region (GOI 2005: 24). Following the Round Table, India and Japan agreed to jointly fund the preparation of a report on reforming the Asian oil market.

Enhancing India’s energy security in West and Central Asia: some considerations and concerns Viability of Central Asian energy resources The Central Asian region poses several problems for countries interested in diversifying their energy security, as compared to the Gulf. To begin with, Central Asia lacks the technical infrastructure required to ensure rapid petroleum development. The development of oil and gas fields in Central Asia is expensive as compared to the Gulf: the fully built-up cost of Central Asian oil is $12.15 per barrel;

Geopolitics of West Asian and Central Asian oil and gas 77 Gulf costs are two to three times less. In addition, Central Asian countries are land locked and primarily depend on proximate markets; and while Central Asian gas could be sent to South Asia and East Asia through pipelines, these would be fairly expensive projects. The continued uncertainty over the Caspian Sea’s legal status is also hindering further oil and gas development in the area. The five littoral states have failed to agree on a plan to divide the sea’s resources, including the oil-rich seabed. Azerbaijan, together with Russia, and Kazakhstan, have advocated establishment of maritime boundaries based on an equidistant division of the sea, but Iran and Turkmenistan disagree (we draw upon APS 2006 in this discussion of the historical and legal background of the Caspian Sea). The Caspian Sea has six separate hydrocarbon basins, although most of its oil and gas reserves have not been developed as yet. The northern part of the Caspian is said to contain more hydrocarbons than the southern part.8 Three options to resolve the matter have been proposed. First, joint ownership of both the seabed and surface of the Caspian; second, division of the seabed and common sovereignty over sea water; and third, dividing up both the seabed and water. Legal experts in the region have argued that since the first option is not practicable, the choice must be between the second and third alternatives. Russia favours dividing up only the seabed, with common sovereignty over the sea’s surface, because it will provide the best security. Much to Tehran’s chagrin, Russia has divided the seabed with Kazakhstan, accepting a share of 16.5 per cent. Tehran goes along with the idea of joint sovereignty over the surface, but wants an equal division of the seabed between the five littoral states: an equal division of the seabed would give Iran a share of 20 per cent, whereas its shoreline covers only 13 per cent. A third area of concern pertains to the viability of transnational pipelines, though as we have argued earlier, there are also good reasons to go ahead with such projects. Current concerns include the possibility of attacks on pipelines passing through the disturbed province of Baluchistan in Pakistan and concerns in India that, amidst possible deteriorating bilateral relations, the Pakistani Government could ‘turn off the tap’ and deny India the gas needed for its power and industrial projects. Similarly, with regards to a proposed pipeline project to India from Turkmenistan, via Afghanistan and Pakistan, there are doubts as to whether Turkmenistan has the gas reserves to justify the pipeline and whether it is legally able to make these exports in light of questions as to whether prior commitments to Russia take precedence. The uncertain situation in Afghanistan also inhibits progress on the project. Finally, given the prolonged insurgency in Iraq after the capture of Baghdad in May 2003, many US plans relating to the setting up of a popular political order in Iraq and the utilization of Iraq’s oil resources for local development (and possibly to finance projects which the US Administration may have made for the region), have not been implemented. Consequently Iraq’s oil industry remains in a parlous condition. To put the Iraqi oil industry in some order, the Iraqi Cabinet on 26 February, 2007 approved a Hydrocarbon Law in which it upheld broad federal control

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over the Iraqi oil industry. The proposed law envisaged that the Ministry of Oil would have an administrative, advisory and regulatory role, with executive decision-making and policy execution vested in the Federal Oil and Gas Council (FOGC). A newly created Iraqi National Oil Company (INOC) will be responsible for exploration and production in Iraq on behalf of the government.9 According to some commentators, the proposed law seems to have a number of ambiguities in crucial areas, including revenue sharing arrangements with the provinces, particularly the Kurdish region, as also the financing of INOC and its role in Iraq’s oil sector. Some critics have suggested that the proposed law is so skewed in favour of foreign firms that it could end up heightening political tensions in the country and spreading instability. For example, it specifies that up to two-thirds of Iraq’s known reserves would be developed by multinationals under contracts lasting for 15–20 years (Mekay 2007). Iraqi labour leaders have pointed out that transferring ownership to foreign companies would encourage the US to continue its occupation of Iraq on the ground that the foreign companies would need to be protected. Above all, there are widespread concerns that the law sets the Iraqi oil industry firmly on the path to full privatization. Engaging other principal players in West Asia and Central Asia China China is a key player in the arena of energy geopolitics in West and Central Asia. Given China’s energy security interests, it is not surprising that it is pursuing policies of robust engagement with the principal oil producing countries of the Gulf. Some American commentators have envisaged nightmare scenarios in West Asia in terms of which China would vigorously pursue alliances with US’s adversaries or even dilute US presence in the region. Others have gone further to envision a protracted US–China struggle for oil, with a close China–Saudi relationship that could lay the groundwork for a world war (Chanlett-Avery 2005). West Asia expert Kenneth Pollack has also spoken of a trend in the region to turn to China as an alternative to the US. According to him, ‘a lot of Arab states … are looking to China not just as a potential economic partner, but also as a potential political counter weight to the US,’ (Massoud 2006). As Leverett and Bader have warned, if Sino–US competition is not managed prudently, it will ‘generate multiple points of bilateral friction and damage US strategic interests in the region’ (Leverett and Bader 2005). In contrast to this strong rhetoric, it is interesting to observe that certain Chinese and even American commentators have recommended a more active Chinese role in West Asia. Thus, Prof Wu Lei, speaking at the China–Arab Cooperation Forum, in December 2005, had strongly recommended that China should enhance its economic and trade relations with the Middle East and North African nations, which presently are limited to energy, and ‘vigorously get involved with the region’s affairs for promotion of peace and stability’ (Wu Lei 2006). Such longterm strategic energy cooperation, Lei said, ‘will pave the way for both partners

Geopolitics of West Asian and Central Asian oil and gas 79 to further collaborate in other areas like politics, culture, science and technology. Needless to say, energy cooperation between China and the Arab nations goes well beyond energy itself. Geopolitical considerations are evident for facilitation of dialogues and coordination with each other’s energy policies.’ China has begun to assert its interests in the hydrocarbon resources of Central Asia. China also shares Russia’s concerns relating to ethno-nationalism and radical Islam, which could have a deleterious impact on the Islamic population in its NorthWest provinces and the Autonomous Territories. Geographical proximity to the region’s hydrocarbon resources has made it natural for China to pursue cooperative exploration and production ventures and pipeline proposals with different Central Asian republics. In the face of American presence in the region, China and Russia are increasingly pursuing a partnership with each other. Both see in the Shanghai Cooperation Organization (SCO), the potential for a bloc which could thwart US attempts at regional hegemony. Chinese efforts at setting up hydrocarbon-based partnerships with Central Asian countries have already met with dramatic success. In December 2005, an oil pipeline of 1240 km from Kazakhstan (Atasu) to Alashankou in North-West China was inaugurated. Again, signalling Sino–Russian partnership in the region, China has asked Russian companies to fill the pipeline with oil till Kazakhstan is able to do so. Thus, for some time, half the oil pumped through the pipeline (having a capacity of 9.96 million tonnes a year) will come from Russia. The capacity of this pipeline will later be downloaded, and it will be extended 3,000 km across Kazakhstan to the Chinese-operated oil fields near the Caspian Sea.10 Later, China purchased the Kazakh company, Petrokazakhstan, for US$4.18 billion. Apart from this, from 1997, Chinese oil companies have invested more than US$2.6 billion in Kazakhstan. China has also moved to access gas reserves from Turkmenistan, with a contract for supply of 30 bcm of Turkmen gas annually from 2009 through a pipeline which will go through Kazakhstan, linking up with the existing Bukhara–Tashkent–Almaty pipeline and extending it to the Chinese border at Alashankou (Olcott 2005). Moscow’s interest in Uzbekistan’s gas seems to have sparked increased Chinese interest as well, with the China National Petroleum Company (CNPC) signing a $600 million agreement with Uzbekneftegaz for 23 smaller oil fields in the Bukhara area (Olcott 2005). China is also moving closer to Azerbaijan and has become a partner in the oil and gas sector. Several Chinese companies have already been granted production-sharing agreements by the Azerbaijan State Oil Company for the development of onshore oil fields in the country. For instance, in June 2004, the Chinese oil company, Shengli, received permission to work on the Garachukhur oil field. It is expected that increase of Azeri oil and gas production will further expand Azeri–Chinese relations (Cornell and Ismailzade 2005). The United States Moving on from China, we consider the role of the United States in this part of the world. The United States sees Central Asia as a region with considerable

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hydrocarbon potential that could emerge as an alternative source of oil and gas and thus support its efforts to reduce its hydrocarbon dependence on West Asia. The region is also important on account of the depletion of production in Alaska and the North Sea (Arvanitopoulos 1998). The United States has some specific reasons to be interested in Central Asian hydrocarbon reserves. First, the oil of the region is of good quality and domestic consumption is not very high, thus making large quantities of local production available for export. In addition, since the countries of the region need capital and technology to develop their reserves, there are attractive opportunities for Western oil companies to participate in petroleum-related projects in the region (Arvanitopoulos 1998). From the geopolitical perspective, the US interest is in consolidating its own position in the region, wrenching the region from Russian influence, ensuring that Iran is excluded from the major oil and gas development projects and transportation routes, and, above all, ensuring that the bulk of Central Asian production finds its way to the West. In implementing this policy, the United States attaches the highest importance to Turkey as the principal transportation corridor from Central Asia to Western Europe (Arvanitopoulos 1998). US policy towards Central Asia achieved its most significant success with the completion of the Baku–Tbilisi–Ceyhan oil pipeline crossing Azerbaijan, Georgia and Turkey, transporting Azeri oil over 1,760 km to the Turkish port of Ceyhan in the east Mediterranean.11 Russia Russia continues as an active player in the geopolitics of Central Asia. Russia’s principal aim in Central Asia is to maintain its influence in the region on the basis of, in Putin’s words, ‘good neighbourly relations and strategic partnership’. Specifically, besides maintaining control over the region’s assets such as hydrocarbons and minerals, Russia would be anxious to counter the influence of Islamist extremist forces. The success of the BTC oil pipeline which will carry Azeri (and later Kazakh) oil Westwards to Europe, outside the Russian-controlled pipeline network, can be seen as fuelling Russia’s concerns in the region. However, Russia’s preponderant presence and its long-term role in the politics and economics of the region cannot be ignored; an American scholar noted this in April 2006:12 Central Asian energy reserves are vast, but we should not exaggerate the role they are likely to play in meeting U.S. and Western needs … No matter how enlightened, U.S. policy will only have a marginal effect on minimizing Russian or Chinese presence in the region, as geography (even without the addition of geopolitical pressure) gives each more leverage. Iran Iran’s geographical position provides an excellent opportunity for oil and gas pipelines to run from the Caspian Sea to the Persian Gulf and the Gulf of Oman. Iran’s 90 years of experience in the oil and gas industries and its existing oil and

Geopolitics of West Asian and Central Asian oil and gas 81 gas installations, port facilities, refineries and networks of oil and gas pipelines also offer considerable advantages to Caspian oil and gas exporters. Iran’s gas pipeline networks are already connected to the Republic of Azerbaijan and they are within a short distance of Turkmenistan. A pipeline connecting Kazakhstan and Turkmenistan to this network would be at least four times shorter and much cheaper than any of the proposed lines to other places such as the Black Sea and the Mediterranean. Throughout the 1990s, Iran made major efforts to engage with Central Asian countries, particularly Azerbaijan and Turkmenistan, to pursue hydrocarbon development and transportation proposals. However, US opposition ensured that these efforts were unsuccessful and Iran was totally excluded from the principal projects. Under strong pressure from the US, Iranian companies were deliberately excluded from participating in the BTC oil pipeline project. The situation changed after 9/11. The subsequent war on terror launched by President Bush, and the inclusion of Iran into the ‘axis of evil’ changed Iran’s approach to Azerbaijan. Fearing that Azerbaijan could host American military bases in a possible conflict with Iran, the Iranian government decided to engage in a dialogue with the Azerbaijani leadership; high-levels visits were exchanged to consolidate bilateral ties. Other issues, such as the opening of the Azerbaijani consulate in Tabriz, and the beginning of airline flights between Tabriz and Baku, were also quickly resolved (Cornell and Ismailzade 2005). Other players The geopolitics of the region are affected by other regional players, such as China, India, Iran and Turkey, as also by developments within Afghanistan and the role of outside players in this country. The Central Asian republics are now sovereign and independent countries with political aspirations of their own and the policies of these countries are guided by several considerations. They include the desire not to be dominated by any single regional or global power; to avoid entering into an exclusivist alliance with any power; to maintain as their primary focus raising the living standards of their people; and to promote political and economic cooperation amongst themselves to achieve their interests.

Conclusion In West Asia, with about two-thirds of the world’s oil reserves, there are new levels of violence, hate and destruction in Iraq, Turkish–Kurdish skirmishes in North Iraq, a near-civil war in Gaza, strong military action by Lebanese forces against Islamist elements, and an on-going confrontation between the US and Iran, centred around the latter’s nuclear ambitions, which threatens to escalate to war. All of these conflicts are taking place amidst a resurgence of extremist Al-Qaeda-oriented forces. While Central Asia does not have a large-scale ongoing armed conflict, there is a chill in US–Russia relations following US plans to set up missile bases in East Europe (and recent Russian military action in Georgia), while the energy-related

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rivalry between them continues (Bhadrakumar 2007). Official US sources have in recent months been expressing concerns about China’s expanding military strength, which is seen as upsetting the military balance of power in the region and encouraging an arms race. Not surprisingly, this environment of insecurity, distrust and big power contention has led to what the Indian strategic affairs commentator, Brahma Chellaney, has described as a ‘qualitative re-ordering of power’ globally but most conspicuously in Asia, in which the major players are seeking to obtain the maximum possible geopolitical advantage for themselves on the basis of ‘new equations and initiatives’ (Chellaney 2007). Thus, the trilateral Russia–China–India dialogue and the evolving Shanghai Cooperation Organization are attempts by major Asian role players to explore and pursue common strategic, primarily energy-related, interests. Separately, the USA, Japan, Australia and India took the first step in giving shape to a new ‘Quadrilateral Initiative’, when officials of the four countries met on the sidelines of the ASEAN Regional Forum (ARF) Summit in Manila in late May 2007. Concerned about China’s sensitivities, the four countries have made it clear that they are not seeking to create a new security alliance but are only ‘looking at issues of common interest’ (Varadarajan 2007). While Indian spokesmen have defended the initiative by pointing out that there are ‘many overlapping structures in Asia’, Chinese commentators have expressed concerns about it, particularly about the Indian participation in the grouping. Thus, the People’s Daily saw in the burgeoning naval cooperation between the four countries ‘a signal for a new balance of force in the Asia region’. The United States, it said, was ‘an old-brand power’ but it is ‘striving to win the support of Japan and India in a bid to prevent China and Russia from joining forces’ (Varadarajan 2007). The present Asian scenario suggests that, while a number of different interests and alliances are being pursued, no firm and enduring security architecture has been put in place that would bring together like-minded countries in opposition to another country or grouping. This is confirmed by the fact that every member of the ‘Quadrilateral Initiative’ has very substantial political and economic ties with China. Again, while the US, in tandem with Japan and Australia, is strongly pursuing relations with India, it is also maintaining substantial links with China and Pakistan. It is interesting to note that, amidst the prevailing cacophony and uncertainty, China and India, which had been seen by many observers as competitors in the pursuit of their energy security interests, are building up bilateral ties on the basis of cooperation in the energy sector. Former Indian Petroleum Minister Mani Shankar Aiyar, in public remarks in Beijing, in January 2006, laid the foundation of an energy-based relationship between them in the following terms (Aiyar 2006): It is in search of such mutual cooperation to the mutual benefit of our two countries that I have come to Beijing … to engage China and India in a strategic and cooperative quest for energy security. For our part, we look upon China not as a strategic competitor but as a strategic partner. Our cooperation

Geopolitics of West Asian and Central Asian oil and gas 83 in energy is based on equal cooperation, mutual benefit, mutual respect and enhanced understanding. [Emphasis added.] He concluded his speech with these words: China has an excellent record of regional cooperation in Asia. So does India. Together, we can set the agenda for Asian energy cooperation. That is how the Asian Quest for Energy Security could lead to Asia regaining its traditional place – a place it has held for thousands of years of recorded history and lost only in the last two hundred years or so – in the vanguard of the advancement of human civilization. The Asian Renaissance brought us all to independence and liberation. Now, the Asian Resurgence depends on energy cooperation in Asia. The 21st century will indeed be the Asian century only if Asian countries – buyers or sellers – join hands together in a continent-wide bid at bringing Asia together and keeping Asia together. I am confident that we will. [Emphasis added.] (Aiyar 2006) India has just commenced a broad-based, constructive energy-related engagement with West Asia and Central Asia. It is emerging as a significant player in the international and regional energy economy and is increasingly being solicited as a partner in the global quest for energy security. The challenge before the country is to understand the importance and implications of the global and regional developments set out above and effect the required adjustments in its politics and policies and, above all, in its mindset, in order to respond effectively to them.

Notes 1 This chapter is a revised version of the paper presented at the TERI-KAF Conference on ‘India’s Energy Security: foreign, trade and security policy contexts’, 29–30 September 2006. 2 ‘Persian Gulf Oil and Gas Exports Fact Sheet’, Energy Information Agency [EIA], Department of Energy, Washington DC, April 2003. 3 Energy security has attributes that distinguish it from other aspects of national security: first, while various aspects of national security are generally ‘status-quo-ist’ in that they protect and sustain the existing order, be it national borders, national political structures or national values, energy security is a dynamic concept in that it enhances a nation’s economic and, therefore, political status by providing it with the resources to pull its people out of poverty and pursue national growth and development. 4 In response to this challenge, the international oil industry is already integrating in significant ways: major companies are merging to pool together their financial resources and technological capabilities. Again, there is a clear trend in favour of national oil companies integrating across the hydrocarbon value-chain, from exploration to production, to transportation, to refining and petrochemicals. Finally, E&P contracts in developing producer countries are increasingly being linked to refinery proposals and, on occasion, even to other infrastructure development proposals such as roads, railways, power, mining and port development projects.

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5 Delhi Declaration, signed by King Abdullah bin Abdul Aziz Al-Saud of Saudi Arabia and Prime Minister Dr. Manmohan Singh of India, on 27 January 2006. 6 Though in money terms the Indian presence is relatively modest, India has established itself in sectors such as pharmaceuticals, tea, readymade garments, woollen goods, leather goods, as jute manufacturers, cosmetics, cotton yarn, machinery, machine tools, rice, plastic products, machinery and instruments, electronic goods and chemicals. 7 ‘China, Russia, India hold trilateral summit’ in The People’s Daily Online, 18 July 2006. Online at: english.people.com.cn/200607/18/print20060718_284229.html 8 Azerbaijan remains locked in disputes with Turkmenistan and Iran over competing claims to overlapping petroleum fields. Tehran maintains that the 1921 and 1940 agreements between the Soviet Union and Iran on the Caspian Sea are valid until a new legal regime has been agreed to by the five littoral states. Iran, meanwhile, regards any unilateral or bilateral deals for hydrocarbon exploration of the Caspian as being null and void. Most of Azerbaijan’s oil resources (proven as well as possible reserves) are located offshore, and perhaps 30–40 per cent of the total oil resources of Kazakhstan and Turkmenistan are offshore as well. Overall, proven gas reserves in the Caspian are estimated at 177–182 TCF. Possible reserves could yield another 293 TCF of natural gas. 9 ‘Iraq Oil Law gets Cabinet Approval as Federal Vision Wins Out for Now’, Middle East Economic Survey, 49(10), 5 March 2007. 10 ‘Kazakhstan Plans Downstream Projects with Russia, Turkey’, Middle East Economic Survey, vol. 49(22), 29 May 2006. 11 The transportation of Central Asian oil to Ceyhan is not just meant for Western markets: there are plans for this oil to be transported to Asian markets as well through an undersea pipeline covering the 400 km distance from Azerbaijan to Ashkelon in Israel, and to pump this oil to Eilat on the Red Sea through the Ashkelon–Eilat pipeline; from Eilat, oil tankers would be in position to take this Caspian oil to India and further afield to South-East Asia and North-East Asia. 12 ‘Kazakhstan Plans Downstream Projects with Russia, Turkey’, Middle East Economic Survey, 49(22), 29 May 2006.

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Planning Commission, 2006. Integrated energy policy: report of the Expert Committee. Government of India, p. xiii. Roy, M. S., 2006. ‘The Shanghai cooperation organization: a critical evaluation.’ IDSA strategic comments, Institute of Defence Studies and Analysis, New Delhi, 4 July 2006, viewed 29 May, 2008 . Kakodkar, A., 2006. ‘Securing our emerging energy needs: what nuclear energy can do.’ Energy Security Insights, 1(1), pp. 4–7. Kumar, A. and Ramana, M. V. (Forthcoming). ‘Nuclear safety in India: theoretical perspectives and empirical evidence.’ ——Submitted. ‘Compromising safety: design choices and severe accident possibilities in India’s prototype fast breeder reactor.’ Lifton, R. J. and Falk, R., 1982. Indefensible weapons: the political and psychological case against nuclearism. New York: Basic Books. López-Abente, G., Aragonés, N. and Pollán, M., 2001. ‘Solid-tumor mortality in the vicinity of uranium cycle facilities and nuclear power plants in Spain.’ Environmental Health Perspectives, 109(7), pp. 721–729. Makhijani, A., Hu, H. and Yih, K., 1995. Nuclear wastelands: a global guide to nuclear weapons production and its health and environmental effects. Cambridge, Mass: MIT Press. Muralidharan, S., 1988. ‘Birth of nuclear power corporation.’ Economic and Political Weekly, 23(5), pp. 190–192. National Research Council, 1996. Nuclear wastes: technologies for separations and transmutation. Washington, DC: National Academy Press. NEA, 2002. Accelerator-driven systems (ADS) and fast reactors (FR) in advanced nuclear fuel cycles. Paris: Nuclear Energy Agency, OECD. NEA, 2002a. Chernobyl: assessment of radiological and health impacts (2002 update of Chernobyl: ten years on.) Paris: OECD Nuclear Energy Agency. Nema, A. K., 1999. ‘Nuclear generation cost in India.’ Nu-Power, 13(1). Nouni, M. R., Mullick, S. C. and Kandpal, T. C., 2006. ‘Photovoltaic projects for decentralized power supply in India: a financial evaluation.’ Energy Policy, 34(18), pp. 3727–38. Perrow, C., 1984. Normal accidents: living with high risk technologies. New York: Basic Books. Planning Commission, 2006. Integrated energy policy: Report of the Expert Committee. New Delhi: Planning Commission, Government of India. Prasad, A. N., 1996. ‘Spent fuel reprocessing: a technology at cross roads.’ In Seminar on Indian Reprocessing, Kalpakkam, pp 13–18, Project KARP, BARC Facilities. Rahman Aziz ur and Basu.,1999. ‘Living in death shadow’, Sunday, 4 April. Ramana, M. V., 2007., ‘Economics of nuclear power: subsidies and competitiveness.’ Economic and Political Weekly, 42(2), pp. 169–171. Ramana, M. V., 2007. ‘Heavy subsidies in heavy water: economics of nuclear power in India.’ Economic and Political Weekly, 42(34), pp. 3483–90. Ramana, M. V., D’Sa, A. and Reddy, A. K. N., 2005. ‘Economics of nuclear power from heavy water reactors.’ Economic and Political Weekly, 40(17), pp. 1763–73. Ramana, M. V. and Suchitra, J. Y. 2007. ‘Costing plutonium: economics of reprocessing in India.’ International Journal of Global Energy Issues 27(4), pp. 454–471.

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Ramana, M. V., Thomas, D. G. and Varughese, S., 2001. ‘Estimating nuclear waste production in India.’ Current Science 81(11), pp. 1458–62. Rethinaraj, T. S. G., 1999. ‘In the comfort of secrecy.’ Bulletin of the Atomic Scientists, 55(6), pp. 52–57. Riyas, A. and Mohanakrishnan, P., 2008. ‘Studies on physics parameters of metal (U-Pu-Zr) fuelled FBR cores.’ Annals of Nuclear Energy, 35(1), pp. 87–92. Sagan, S., 1993. The limits of safety: organizations, accidents and nuclear weapons. Princeton: Princeton University Press. Schneider, E. and Sailor, W. C., 2005. Long term uranium supply issues and estimates. Washington, DC: Los Alamos National Laboratory, US Department of Energy. Sethna, H., 1979, ‘India’s atomic energy programme – past and future.’ IAEA Bulletin, 21(5), pp. 2–11. Shields, L. M., Wiese, W. H., Skipper, B. J., Charley, B. and Benally, L., 1992. ‘Navajo birth outcomes in the Shiprock uranium mining area.’ Health Physics, 63(5), pp. 542–51. Shukla, P. R., Ghosh, D. and Garg, A., 2003. ‘Future energy trends and GHG emissions for India.’ In Toman, M. A., Chakravaraty, U. and Gupta, S. (eds.) Global climate change: perspectives on economics and policy from a developing country. Washington DC: Resources for the Future. Sonowal, C. J. and Jojo, S. K., 2003. ‘Radiation and tribal health in Jadugoda: the contention between science and sufferings.’ Studies of Tribes and Tribals, 1(2), pp. 111–26. Srinivasan, M. R., 1985. ‘The Indian nuclear power programme.’ Paper presented at IndoFrench Seminar on Nuclear Energy, Bombay, 1–4 April 1985. Suchitra, J. Y. and Ramana, M. V. (In preparation.) ‘The costs of power: plutonium and the economics of India’s prototype fast breeder reactor.’ Thakur, S. and Chaurasia, B. P., 2005. Cost effectiveness of electricity generating technologies. Mumbai: Nuclear Power Corporation. Tiwari, M., 1999. ‘A deformed existence.’ Down to Earth, 15 June. UNSCEAR, 2000. Sources and effects of ionizing radiation: UNSCEAR 2000 report to the General Assembly, with scientific annexes. New York: United Nations Scientific Committee on the Effects of Atomic Radiation, United Nations. Von Hippel, F. and Jones, S., 1997. ‘The slow death of the fast breeder.’ Bulletin of the Atomic Scientists, 53(5), pp. 46–51.

15 India’s energy security landscape Joining the dots and looking ahead Ligia Noronha

The current debate on India’s energy security is framed by three key issues: energy needs related to growth, the stark energy poverty in the country, and the implications of its energy paths to future contribution to climate change. They all involve some form of risk: energy poverty has environmental health implications,1 involves special burdens on women and children, and results in a lack of educational facilities and jobs and reduced opportunities. Energy and growth linkages can lead to possible competition over securing resources and even traditional security conflicts. This is especially pertinent for large growing economies like India and China, and large developed economies such as the United States that depend on external energy sources. India’s energy mix, as that of most other countries, is dominated by fossil fuels, and global climate risks are linked with how a country chooses to fuel its economy in the future. It is within this linked energyenvironment-development context that the understanding of, and ways to address, India’s energy security concerns need to be located. India’s development objectives require the Indian economy to grow at eight per cent per annum over the next two and a half decades; the estimates of the Indian Planning Commission suggest that this requires the commercial energy sector to grow at –five to six per cent p.a. to 2031 over the 2003–04 levels, and in a business as usual situation this will mean that energy supplies will have to be 7.5 times current amounts. The fuel mix is very much based on fossil fuels and over this period India is expected to become 59 per cent import-dependent for its commercial energy requirements. With rising oil and coal prices, a rising resource nationalism, increased risks and threats to energy infrastructure, and the implications of the effect of a large increase in fossil fuel use on carbon emissions, India’s energy concerns have been growing acutely, and with it the ‘securitization’ of the debate around it. From ‘availability’ and ‘affordability’, the need for ‘secure’ energy resources has become central to maintaining and achieving economic dynamism; the objective of energy independence is becoming very important, but strategies pursued to secure this ‘independence’ – equity investments, bilateral deals and new energy ties, new thinking on and alignments for nuclear energy – have tended to create regional and global concerns about their implications. This volume has sought to highlight some of the key concerns that relate to India’s energy security, concerns relating to

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access, fuel choices, fuel sourcing, consumption, and environmental sustainability and how these are being addressed or need to be addressed. This concluding chapter briefly brings together some of the key messages that have emerged from the essays in this volume, and reflects on the way forward.

Key messages Section I of this volume concentrated on mapping India’s energy security concerns and energy policy making. It is evident that given India’s energy requirements, its energy policy must focus on exploiting a variety of energy sources, while at the same time dealing with social and environmental inequities and damages. Within this already complicated framework, it is by no means easy to ensure that the national energy policy pays heed not just to ensuring the availability of sustainable energy, but also assuages concerns about security and stability. Thus there are a number of dimensions to the problem. They include internal factors, such as consumption patterns, a flawed domestic policy and infrastructural choices, and energy poverty; and an external dimension – a rising import bill, the geopolitics of global energy trade and military vulnerabilities. Of these two, it is the external dimension of energy policy that is most closely identified with energy security, although it is by no means a complete description of the issue, which is why this volume sought to focus on understanding the context of India’s energy security concerns in Section I. Sudarshan and Noronha, in the opening chapter, focussed on India’s fossil fuel path dependence, an energy path which in general is not dissimilar to that followed by the developed world. This chapter sought to ask why India has struggled to implement change, even where attempts have been made, and to explain the struggle through the use of new institutional economics, and with a focus on four constraints – technology, relative prices, beliefs and perceptions, and institutions and organizations. Sethi discusses the key energy challenge India faces, which is to decouple economic growth (which is key to address India’s poverty) from growth in energy consumption while ensuring universal access to lifeline levels of energy consumption. He highlights the three most important challenges for India: The need to access more energy at ‘affordable’ prices; the growing pressure on its incremental contribution to greenhouse gases from the use of coal resources; and, finally, the challenges posed by an inadequate domestic energy infrastructure. He provides arguments for several of the choices India is making in its energy strategies, and explains why some are preferred over others. India’s energy strategies involve developing domestic energy sources, finding new sources, and energy efficiency measures. The balance of India’s requirements is imported or sourced overseas in terms of equity investments. Sethi argues strongly for choices that have inclusive growth results and that are also environmentally sustainable. As one of the key architects of India’s Integrated Energy Policy of 2006, Sethi’s comments provide pointers to understanding energy choices and the limits of India’s room to manoeuvre on this front.

India's energy security landscape 225 India’s energy choices and strategies have become the centre of regional and global attention for a number of reasons. One is that, along with a somewhat unfair hyphenation with China, India’s growing energy demand is said to be exerting a new pressure on world supplies. On the other hand, its low per capita energy consumption, a fifth of the world’s average, implies that a large part of its population is still starved of energy, which influences its development options and affects its human condition. A second reason is that a large part of India’s fuel mix is carbon based. India’s development needs and current energy choices require the global community to provide it with a greater share of the shrinking ecological space, as defined by the limits of carbon absorptive capacity. Alternatively, it needs assistance, financial and technical, to move to low carbon paths. But given India’s emerging global presence, there is a concern that such assistance, while it may address a global public ‘bad’ such as climate change, may work to the competitive disadvantage of the developed world. Third, there is a concern among OECD countries that India’s overseas energy initiatives reduce the ability of OECD countries to further own foreign policy agenda on democracy and governance, and hurt other international energy companies as they perceive Indian (and Chinese) companies competing unfairly. I return to this point later in the chapter. Fourth, an issue of domestic rather than international concern; is why clean energy sources such as hydropower, for example, have not taken off in India, despite their potential. I would argue that this is primarily because inadequate attention has been paid to equitable benefit-sharing mechanisms, land-use compensation, and the rehabilitation aspects of such developments. Compensation for land that is used up for energy-resource development must go beyond one-time payments to project-affected people and should include employment opportunities, share in revenue streams, and lease/rental value for the land, with an escalation factor.2 Gupta and Sudarshan have focused on a detailed review of the literature on energy and poverty linkages and provide an analysis of the energy use patterns and transitions for cooking and lighting in India. They argue that while availability alone is not enough to motivate shifts in energy use, enabling widespread access to modern alternatives is crucial if transitions are to work. They point out that when fuel supply and distribution systems are controlled by the state, there tend to be inequities in distribution, black markets, and corruption. Enabling easy access, they argue, is making it possible for poor households to purchase small amounts of energy at a time to make it affordable. As far as electricity is concerned, lowampere connections need to be made available. Thus ensuring the availability of electrical connections that take into account the needs of the consumer is important, and it is not necessarily the case that one size should fit all. The chapter also highlights a long-standing debate in India that while, in principle, subsidies can increase the ability of the poor to access modern energy sources, broad based subsidies perversely tend to benefit the better off much more than the truly poor, because of the greater consumption and greater ease of access of those who are better off. The use of smart cards to target subsidies has also been much talked about but is yet to be implemented in India. Section II puts Indian energy needs in a global context and examines India’s

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challenges and strategies in the light of rising energy prices, market power and geopolitical developments. This discussion helps place in context the vulnerabilities that India faces, purely as a consequence of being a heavily import dependent nation (especially with regards to oil). It also makes the point that the oil market in itself, even aside from geopolitical concerns, has players with significant market power and consequently is unlikely to reflect the characteristics of a competitive system. Nanda argues that optimising the energy-use mix in the country on the basis of future scenarios in different energy products in the global market should be, and is, a policy imperative. He points out that India currently has a high dependence on oil and coal but very little use of gas, but given that oil has always been a problem for India, and that higher imports of coal in the future will also have their own problems, India must explore the option of increasing the use of gas and renewable forms of energy. A greater engagement with natural gas will undoubtedly require India to deal with the geopolitical challenges surrounding natural gas development, production, and distribution at the international level, with a need for attention to the development of markets, infrastructure, and regulation at the domestic level. Ahmad, through a broad discussion of issues relating to the location of key oil and gas resources in Western and Central Asia, and through an argument of why these regions are key to India’s oil and gas security, highlights a number of different interests and alliances that are being pursued in Asia. In his chapter, he puts forward the view that India perceives the quest for energy security as requiring a collaborative approach rather than one defined in terms of competition and conflict. He points out that this quest needs to engage and build relations with other consumers and producers. His chapter provides various examples of India’s energy, especially oil, diplomacy. Some of these initiatives and ties are, as mentioned before, raising a concern among Western nations that they undermine their own efforts at improving governance and human rights in those countries.The counter to this view is, of course, that a large number of international companies have been doing business with these countries for a long time, and this new refrain is really just a concern that they may be losing ground to the new competitors. I have also argued in several fora on previous occasions that these ties, while seeming expedient in the short run, can lead to increased stakes in greater stability and peace in regions currently troubled. The transnational natural gas pipeline story in India is one of failures rather than successes. Batra focused on a discussion of the four pipelines that have been continually in and out of the public and political gaze. His key observation is that India has failed to tie up a single pipeline project in its neighbourhood, despite being surrounded by countries with natural gas. He argues that geopolitics, security concerns about pipelines and assurance and pricing of gas supply have been key factors in this failure. It is abundantly clear that if these or any other transnational pipeline projects are to take off, there is need for greater investor confidence, trust and cooperation. Absence of trust, and the existence of sanctions, embargoes, and threats, tends to result in under-investment in energy-resource development through reduced capital flows. The economic impacts of such political choices are then felt keenly through the reduced availability of energy supplies.

India's energy security landscape 227 The issue of cooperation or conflict with China on energy-securing issues has been the subject of considerable conjecture and debate over the last three years. In many ways, both countries have similar energy profiles and concerns and similar internal and external energy-securing strategies. The key difference seems to be in the intensity with which these are pursued, China being far more intense than India in its energy pursuits. The international debate has focussed considerably on the potential for competition and conflict between these two emerging economies as they search for resources. There have indeed been some instances of competition, wherein China has taken the prize. In her chapter, Mahalingam, however, focuses on what seems to make more long-term sense for India and China – energy collaborations in areas where this makes sense. She argues for planned initiatives and a movement from the general to the specific in order to get them off the ground. Khurana highlights India’s very high dependence on maritime routes for the transport of imported energy and analyses the geopolitical reasons why they, rather than the overland route, will continue to remain important in future. Given this, he discusses the various kinds of potential threats – state and non state – to these energy ‘lifelines’, and emerging security issues, which can result in an increased vulnerability for India, in the context of geostrategic imperatives. He argues for appropriate policy responses towards secure ‘maritime logistics’ of energy resources. Raja Mohan explores the larger conceptual challenges that Indian foreign policy must confront in ensuring energy security for the nation. He does this by examining some key elements of India’s energy strategy to assess the implications these could have for India’s traditional foreign policy, and what might need to change if they were to be successful. He argues that energy security is not just an additional demand on India’s foreign policy, but that, given its scale and scope it requires a fundamental change in the principles that have guided this policy. The transition towards a more responsible foreign policy, he suggests is needed, at once committed to securing India’s national interests as well as contributing to collective goods. Section III has deliberately focussed on issues of energy consumption with a view to assessing what can be done to address consumption proactively. While India has an acute energy poverty problem, there is an emerging class that is beginning to adopt very lavish, energy consuming lifestyles. It is to this emerging concern that Das Gupta turns in her chapter, and provides an early warning of what such lifestyles could mean for both energy security and climate change. While her chapter focuses on the need for individual and household behaviour to avoid the trodden path of overconsumption, the chapter by Dadhich reports on an earlier TERI study which, through modelling scenarios, highlights the implications of technology choices for increased energy efficiency and cleaner energy use more widely across sectors. Mathur et al. take this a step forward and examine the policies and government initiatives that have been put in place in India to influence and incentivize more energy-efficient behaviour and consumption choices. Their paper also discusses the observed constraints to improved behaviour and to the uptake of cleaner technologies.

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An important aspect of energy security that has not been covered in much detail, almost not at all in this volume, is energy pricing. All four energy policy concerns – access, security, efficiency, and environmental sustainability – demand a rational approach to energy pricing in order to provide right signals to producers, consumers and investors. As long as India was insulated from the global market, this could to some extent be tolerable, although the price rise of the 1970s pressured India enormously given the burden on balance of payments from oil imports. But the projected increase in dependence on imports of oil, gas and coal, as well as the need for creative incentives to move to a low carbon economy, makes energy pricing a key aspect of energy decision-making. Whether it is to incentivise change, or to create more oil-independent lifestyles, pricing is a key instrument to leverage change in consumption patterns and technology choices. Energy pricing in India, however, has been particularly susceptible to administrative fiat and the calculus of politics. And oil prices have always been a particular target of policy attention to insulate the economy from external forces, subsidize its use by some groups, as well as to provide revenues for the government. Take the recent handling of rising international oil prices by the Indian government: with international oil prices at USD135/bbl and having risen sharply over the last two years, product prices at the pump had gone up just twice. In part this was because the Indian consumer had already for a long time been paying a high price for petrol and diesel because of the high share of taxes (excise duties, education cesses and State sales tax) in the price build up, and so in many ways it was unfair to pass on the higher international oil prices. But in 2008, because of this control on prices, petroleum product prices at the pump, despite the taxes, have been lower than they should be if the right signals to conserve and reduce the use of oil were to be given. The burden of the subsidy was borne by oil marketing companies and the exchequer and future taxpayers, as it was financed through under-recoveries by oil companies and the issue of oil bonds. In very early June 2008, before the latest revision in prices and the reduction in taxes, oil marketing companies were losing Rs.13.8/litre of petrol and Rs.25/litre of diesel due to domestic pricing polices.3 In the case of LPG and kerosene, used for cooking and lighting, the price differential between the price paid for the Indian basket of crude and the subsidized price has also been borne by oil marketing companies, and with rising crude oil prices the under-recovery on these fuels has been increasing (Misra et al. 2008). The stark truth is that these subsidies, ostensibly introduced to help the poor, are not reaching the poor, and are in fact being diverted to service the better-off classes. TERI has been mooting the use of smart cards to target such subsidies to the intended groups (Misra et al. 2005), and the Integrated Energy Policy, released in August 2006, mentions smart cards as an important option for the provision of targeted subsidy delivery to the needy. But whether it is fuel for transport or for cooking and lighting, the issue of pricing and targeted subsidies are caught in non decisions and politics. Few attempts exist to rationalize the system or to address if we should in fact be subsidizing the use of oil or diverting these funds into investments of renewable energy. Meanwhile the concern is that wrong signals are being sent out and wrong incentives created in terms of influencing choices about energy consuming and

India's energy security landscape 229 producing. The high subsidy that is given to diesel is in fact leading to what has been termed the ‘dieselization of the Indian economy’4. In Section IV of the volume we focus on the nuclear debate in India. We deliberately chose two polar papers in order to highlight that, in the Indian case, the ‘jury is still out’ on the role that nuclear energy should play in India’s energy future.5 It is evident that India does not have many choices as far as fuels go; its richest energy source may well be solar power. But until this is well and truly established, the country needs to use every energy source that it can work with. The power projections over the next 30 years make this an important option. Grover’s chapter makes a strong case for the nuclear energy source and clearly discusses its development in the Indian context. He also makes the point that the economics of nuclear power generation are complicated to determine, and that there are grounds to believe that it makes sense in an Indian context. The argument that nuclear energy is a cleaner fuel than fossil fuels in terms of carbon emissions has contributed to its increased acceptability, but there are still many grave unknowns and uncertainties – economics, the environmental and human impact of possible disasters, discussed in the chapter by Ramana and Suchitra – which make this energy source difficult to bat for unreservedly. The authors argue that the environmental costs of nuclear power are high, and the economics uncertain. They point out that these concerns should not be forgotten simply because nuclear energy happens to be freer of carbon emissions. Growth of nuclear energy in India is constrained by India’s uranium reserves. This was the key reason the Indian nuclear establishment opted for a three-stage nuclear programme very early on, as discussed in Grover’s chapter. But thorium technology is 30 to 40 years away and to run it there is a need to access the global market for uranium as the cycles are interlinked, and the third phase is possible only after 50GW of the first and second phase of the programme are established. But since India has not signed the Non-Proliferation Treaty, it has been unable to import uranium. The recent waiver by the Nuclear Suppliers Group will open international opportunities for civil nuclear trade. Without such a waiver, India's nuclear energy, based on just indigenous resources, could increase from 3.31 GW in 2006, to 6.78 GW by 2010, and to 21.18 GW by 2020. It would stay at this beyond 2021, given limited domestic uranium reserves and no imports. However, with the waiver and a successful implementation of the Indo–US nuclear collaboration, DAE expectations are that nuclear energy generation capacity can go up to 70 GW by 2031–32 and to 275 GW by 2052. If the third stage becomes operational, using FBR technology and thorium as fuel the estimated potential from nuclear is 530 GW. Much, however, depends on the fine print of the nuclear energy deal and its interpretation and acceptance by the concerned parties, as well as internationally. The Indo–US nuclear energy collaboration has served to highlight a basic divergence of ideologies in the country, particularly with regard to India’s place in the world and its relationship with the United States. However, the specific political debate on the nuclear agreement in India and the United States is an ongoing dynamic process, one which has seen, and is continuing to see, rapid developments. For that reason it is hard to discuss the specifics of that agreement

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in a volume such as this one, though the ramifications of this experience (whatever the eventual outcome of the deal) will certainly have important implications for India’s future energy policy. Raja Mohan in Section II does provide a brief toplevel discussion of some of the lessons that can be drawn from the controversy over the nuclear agreement, as well as some discussion on what it means in the context of India’s foreign policy and international energy policy. But it is clear that it is politics, not economics, which will drive decisions on the nuclear option, as is the case in other countries.6

Looking ahead As the chapters in this volume highlight, addressing energy security is complex, enmeshed as it is in domestic and global politics. The key challenges that India faces, and will face include the following. •

• •

•

•

Increasing economic growth while trying to keep growth in energy demand down. This is especially challenging due to the transition from biomass to fossil fuels, the growth of motorized private transport, and rising incomes, aspirations and changing lifestyles. Severe energy inequities and the likely persistence of a significant share of traditional fuels in the primary energy mix for at least another decade. The ‘lock-in’ characteristics of India’s fuel mix, where coal and oil remain the dominant energy sources across a variety of scenarios; and supply, technology and cost constraints restrict the adoption of alternatives such as natural gas, renewables and nuclear energy. High current and projected import dependencies, particularly on coal and oil, and consequent geopolitical and trade implications and increased import bills, given rising fuel prices. Global and local environmental concerns and the possibility of constraints placed on energy choices as part of the international climate change negotiations process.

Addressing such challenges needs a global-national-local perspective. India’s energy security will increasingly depend on action along three fronts: the diversification of energy supplies, the ‘securing’ of energy supplies, and managing energy consumption. The diversification of energy supplies in turn implies the following: (1) a search for new markets, (2) search for secure, stable energy partners and routes of transportation and (3) search for affordable energy supplies, through oil equity, joint ventures, production-sharing arrangements and so on. The ‘securing’ of energy supplies will need to involve: (1) a pragmatic and skilful foreign policy that is capable of leveraging the national interest within a complex regional and international geopolitical environment, (2) a long-term view of the security of energy supplies in terms of the impact of resource-based trade and investment on the country of origin, and (3) a long-term view of energy demand and production in light of environmental concerns such as climate change. Managing energy consumption will involve: (1) enhanced efficiency in energy consumption so

India's energy security landscape 231 that a certain level of energy services is met by consuming less energy. This is applicable to ‘islands’ of high energy intensity such as industry, transport and high-income households; (2) addressing social inequities in energy access resulting from differences in physical access as well as affordability; (3) reduction in the environmental and carbon footprints of energy consumption through a judicious choice of clean fuels and improved energy use technologies. Given the transnational nature of the challenges, multilateral efforts are also needed on the issue of high and rising oil prices, nuclear-energy trade, increased cooperation on renewable energy sources; and towards more equitable global energy consumption that increases ecological space for less developed economies to provide energy to their populations. It is immediately obvious that addressing such issues globally also requires a competitive and healthy domestic energy sector that avoids price distortions and wrong signals to producers and consumers; flexible institutions that can respond to shocks and changes to the system; and an increasingly aware domestic consuming class. Nations cannot hope to achieve energy security without entering into mutually beneficial and interdependent relations with other countries. As Yergin put it: ‘… it must be recognized that energy security does not stand by itself but is lodged in the larger relations among nations and how they interact with one another’ (Yergin 2006). In our view, these relations have to be collaborative and without conflict. Securing energy, although seemingly an objective in the national interest, needs, in its achievement, the quest for improved relations with both consuming and producing nations. A quest for energy security that results in nations being pitted against each other and in competition, with elements where there is the potential for conflict, can only be a short-term vision that will result in zero-sum solutions. What are needed are collaboration and partnership, and the building of trust. There is an urgent need to understand the interdependence of energy systems and the complementary interests of energy producers and consumers, and the need for stability in markets and supplies. While energy security has hitherto been discussed from the perspective of importers and consumers, increasingly the debate is getting enlarged. It needs to get enlarged to include the exporters, as it is becoming evident that long-term security lies in recognizing and deepening the interdependence. India needs to be part of, and central to, a new architecture for energy cooperation. This can be at various levels: bilateral, regional, and global; and can take many forms – the development of energy hubs, energy dialogues, joint stockpiling, joint research and development into new technologies, and into clean coal technologies. It also needs to be part of global initiatives to stabilize prices. Identification of energy hubs within the South Asian region can serve to not only integrate the South Asian region within, but also connect a principal member of the South Asian region to an external energy supplying country or region.7 The recent announcement of the setting up of a Solar Energy Commission along the lines of the Atomic Energy Commission as part of India’s Climate Change Action Plan is very welcome, as it was never clear why India, with abundant solar resources, never gave the development of this technology the rightful place

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that it deserved. From the point of view of resource availability, access, avoidance of geopolitics, the ability to have distributed decentralized generation, and environmental sustainability, solar power is a natural solution to a large part of India’s energy insecurity. There exist possibilities for countries to take up joint ventures wherein India could provide technology and expertise with regard to wind power generators. India may also provide technology and/or finance for wind installation in another country’s territory, which could then feed in a proportion of the generated power to the Indian grid. India’s lead in the manufacture of solar panels and photovoltaic cells too can provide the basis for collaborative ventures and trade. Surplus hydropower availability in the neighbourhood of Bhutan and Nepal makes them important contributors of hydro-electricity to India. These initiatives have an added value not only in that they help build neighbourhood relations and increase energy availability, but they also help address climate change concerns. This seems an opportune time to change the way we do energy business. This is a time when we need to go beyond state-centred views of energy security and find ways in which we can work with a more global perspective of energy security that also addresses climate concerns. A deep commitment is needed to more financing, access to clean technologies, greater international and national collective action, and changes in the way we live our lives. Technology for cleaner development offers some room to manoeuvre, as we have seen, but the scale of the energy and climate problem is huge and the full extent of the future implications of climate change is still so uncertain that unless we change our consumption patterns, the future is at great risk for all of us. There is no better time or stronger arguments to get off the path of fossil fuel path than now. It is urgent therefore, that we engage with all the key sources of this dependence to effect a process of energy change.

Notes 1 For example, the WHO estimates that indoor smoke from solid fuels kills 1.6 million people a year. See http://www.who.int/indoorair/health_impacts/burden_global/en/index. html, viewed 25 September, 2007. 2 See ‘Study on compensation to resource bearing States,’ prepared by The Energy and Resources Institute for the Inter-State Council Secretariat, Ministry of Home Affairs, India, 2007. 3 ‘The dilemma called Oil’ V Mehta, Indian Express, 3 June, 2008. 4 ‘The dilemma called Oil’ V Mehta, Indian Express, 3 June, 2008. 5 See also Section III in Sharma and Noronha, 2008, Energy, climate and security: the interlinkages Proceedings of the Second TERI-KAS Conference, KAS publication Series No. 19, New Delhi. 6 See the comments by Ashley Tellis in ‘The Nuclear Comeback: An Option for Sustaining Global energy and Climate Security?’ in Sharma and Noronha, 2008, op cit. 7 Sharma and Mahajan, inputs from research done under the Khemka project.

References Misra, N., Chawla, R., Srivastava, L. and Pachauri, R. K., 2005. Petroleum prices in India: balancing efficiency and equity. New Delhi: TERI.

India's energy security landscape 233 Misra, N., Chawla, R. and Srivastava, L., 2008. ‘Towards effective petroleum subsidies.’ Energy Security Insights, April. Sharma, D. and Noronha, L., 2008. Energy, climate and security: the inter-linkages. Proceedings of the Second TERI-KAS Conference, KAS publication Series No. 19, New Delhi. TERI, 2007. ‘Compensation to resource bearing States: minerals, coal and hydropower.’ [Report for the Inter State Council], New Delhi. Yergin, D., 2006. ‘Foreign Affairs’, March/April.

Conversion factors

Crude oil conversion factors Crude Oil*

To

tonnes (metric)

kilolitres

From

Multiply by 1

1.165

7.33

307.86

–

Kilolitres

0.8581

1

6.2898

264.17

–

Barrels

0.1364

0.159

1

42

–

US gallons

0.00325

0.0038

0.0238

1

–

Barrels/day

–

–

–

Tonnes (metric)

*Based on worldwide average gravity.

barrels

US gallons

–

tonnes/ year

49.8

Conversion factors 235

Natural gas conversion factors Natural Gas & LNG

To

From

Multiply by

billion cubic metres NG

billion million million trillion million cubic tonnes oil tonnes British barrels oil feet NG equivalent LNG thermal equivalent units

1 billion cubic metres NG

1

35.3

0.90

0.73

36

6.29

1 billion cubic feet NG

0.028

1

0.026

0.021

1.03

0.18

1 million tonnes oil equivalent

1.111

39.2

1

0.805

40.4

7.33

1 million tonnes LNG

1.38

48.7

1.23

1

52.0

8.68

1 trillion British thermal units 1 million barrels oil equivalent

0.028

0.98

0.025

0.02

1

0.17

0.16

5.61

0.14

0.12

5.8

1

Units of measure 1 metric tonne = 2204.62 lb. = 1.1023 short tons 1 kilolitre = 6.2898 barrels 1 kilolitre = 1 cubic metre 1 kilocalorie (kcal) = 4.187 kJ = 3.968 Btu 1 kilojoule (kJ) = 0.239 kcal = 0.948 Btu 1 British thermal unit (Btu) = 0.252 kcal = 1.055 kJ 1 kilowatt-hour (kWh) = 860 kcal = 3600 kJ = 3412 Btu

Calorific equivalents One tonne of oil equivalent equals approximately Heat units

10 million kilocalories 42 gigajoules 40 million Btu

Solid fuels

1.5 tonnes of hard coal 3 tonnes of lignite

Gaseous fuels Electricity

See natural gas and LNG table 12 megawatt-hours

236

Conversion factors

Notes One million tonnes of oil produces about 4,500 gigawatt-hours (= 4.5 terawatt hours) of electricity in a modern power station. Tonnes = metric tons. The preferred units used through this volume are as follows: Primary energy: Exajoules (EJ) or millions of tonnes of oil equivalent (mtoe) Crude oil: Millions of tonnes (mt) Natural gas: cubic metres (billions of cubic metres - bcm, trillions of cubic metres-tcm) Coal: Metric tonnes Pipeline flows: MMSCMD (million standard cubic meters a day)

References British Petroleum Conversion Factors, viewed 13 june 2008.

Index

Advanced Fuel Fabrication Facility 214 agricultural: growth 26; labour 37 Ahmedijijad HH 103 air pollution, indoor 10 Aiyar, Mani Shankar 82 Al Qaeda 113, 114, 115 Alibekmola oil field 72 Al-Nashiri 114 Alondra Rainbow 120 alternative: fuels and renewable energy 183; technologies 42 Ambassador Ishran Aziz Amudarya River 92 Anglo–Iranian oil 5 Ardekani Dr As 88 ASEAN Regional Forum (ARF) 82 Asia Maritime Security Initiative 120 Asian Development Bank 91 Asian Gas Grid 74 Asian Producer-Consumer Dialogue 66 Australia 23 Baku–Tbilism–Ceyhan oil pipeline 80 biodiversity, loss of 27 bioenergy 26, 28 biogas plants 42 biomass 4, 19; energy 7; fuels 149; primary fuel 32 Bombay High 110 British Petroleum 5 BRT (bus rapid transit) 157 Bukhara–Tashkent–Almaty pipeline 79 Bureau of Energy Efficiency (BEE) 184, 188 Bush, George W Business Council for Sustainable Development (BCSD) 183 Cairn Energy 110 carbon dioxide 100; emissions 145

carbon footprint, India, 145; free growth 100 Caspian Sea 66, 77 casual workers 27 Central Asian Republics 109 Central Electricity Authority 194 central electricity regulatory commission 185 compact fluorescent lamps (CFLs) 157, 181 Chandigarh 16 Chernobyl 203 China 19, 22, 23 China National Petroleum Company (CNPC) 79 chullas or LPG stoves 43 clean coal technologies 25, 28, 100 Clean Develo 180 Clean Development Mechanism 100 clean: drinking water 19; fuels, access to 45; technologies 42, 43; water 29 cleaner fuels 3, 4 climate: change 6, 75, 180, 223; security 27 CNG-based public transport 16 coal 10, 11, 12, 22, 98; bed methane 111; coking 13; imports of 226; in the power sector 11; pricing 12; from Wales 5 Coal India Limited (CIL) 13 Coast Guard, Indian 123 commercial: diplomacy 128; fuels 7 Confederation of Indian Industries (CII) 159, 184 cooking, dung cakes firewood, LPG, wood chips, 4 crude oil 60; consumption of 108, 116; imports of 53; prices 95; production 108 Cuba Petroleos 111

238

Index

Defence Cooperation Agreement 135 Department of Atomic Energy (DAE) 208, 209, 211, 212. 213, 214, 217 dependency on foreign energy 52 Dewi Madrim 114 disease 6 disempowerment 19 domestic gas, prices 95 dung cakes, for cooking 4 economic growth 3, 5, 21, 97 Ecuador 23 efficiency in building 186 efficient electricity production 185 electric power generation 138 electricity 4, 102; generation 45, 207; access to 40; demand for 7, 195; for lighting 151, 152; production 98 electrification 44 Eleventh Five Year Plan 99, 162, 186 energy: access 4, 132; affordability 43; alternatives 22, 24; alternatives – hydro, wind, nuclear 26 (and growth 3) (and poverty 3); audits 181; clean 3; challenge 19; commercial 20, 21, 148; commodities, market behaviour 54; companies, futures market 61; conservation 75; consumption 3, 97, 186; consumption patterns 145; ecosystem 42; efficiency 24, 97; end use technologies 179; equities 3; four constraints 234; future demand 60; global market prices 53; import 7, 21; infrastructure 4; insecurity 180, 232; issues 4, 127; needs 7, 21, 26, 179, 223; plan 207; policies 5, 6, 132, 207; policy decisions 3; policy initiatives 12; policy making 224; poor 29; poverty 4, 29, 30, 223; poverty trap 31; poverty, nature of 29; prices 22; 228; products 56; requirements 65; scarcity 183; scenario, India 67; secure policy 7; security 3, 5, 6, 7,9, 61, 64, 66, 69, 76, 97, 127, 128, 129, 130, 133, 134, 135, 136, 179, 217, 223; security concerns 224; security interests 70; solar 28; stakes 136; threats 21; trade 3, 51; vulnerable 30 energy consumption: commercial 153; direct and indirect 145; efficient growth 21; housing 153; per capita 32; transport sector 175 Energy Conservation Law 155 energy demand 8; Asia 65; commercial 8 Energy Efficient Government Buildings programme 187

Energy Information Administration (of US) 5 energy intensity, Japan, Brazil, Germany 24 energy sector, four key sources 9, 17 energy security, economic, political, technological and demographic changes, 10 Energy Service Companies (ESCOs) 184, 187 energy services: cooking and heating 32; electricity for lighting, radios, televisions, refrigerators 32 energy use 10, 150; household 29; for lighting 38; modern alternatives 44; poor, rural household 44 energy, non-conventional sources 64 energy-demand profile 108 energy-related policy challenges 3 energy-saving opportunities 181 enterprise resource planning (ERP) 183 Environmental Impact Assessment (EIA) Notification 1994 158, 187 environmental sustainability 97 Environmentally Sustainable Transport (EST) 156 equity oil 128, 130 Exclusive Economic Zone (EEZ) 109, 111, 114, 118 eye diseases 31 Fast Reactor Fuel Cycle Facility 214 fast reactors (FRs) 210 Federal Oil and Gas Council (FOGC) 78 fertilizers 26 Fifteenth Five Year Plan 68 Fifth Shangri La Dialogue 121 Firewood 30, 35; for cooking 4 foreign direct investment 130 foreign energy 62 foreign military adventures 134 foreign policies 131, 133 foreign policy objectives 133 forests, loss of 27 fossil fuel 4, 7, 6, 8, 10, 22, 24, 51, 99 fossil fuels, India’s share 21 freight transport 15, 108 fuel alternatives 41 fuel: choices 31; commercial, coal, oil, gas 41; for cooking 29, 43; prices 7; sources, traditional 3 fuels, crop residues, dung, firewood 31 fuels, dependence on 29

Index 239 Gas Authority of India Limited (GAIL) 72, 111 Garachuhukhur oil field 79 gas prices 101 gas: demand for 64; substitute for oil 56 gross domestic product (GDP) 20, 22, 24, 89 gender inequality 19 Geological Survey of India 12 geopolitics 3, 87, 129, 224, 232, 234 GHG emissions (GHG) 6, 20, 23, 27, 98, 100, 147, 155, 156, 179, 180 global energy: consumption patterns 97; markets 51; policy 224; trade 224 global gas reserves 67, 68 global warming 127, 139 Global Warming Prevention Headquarters 155 good quality energy sources, access to 29 government policy 13 Great Britain 5 green purchasing 155 Green Rating for Integrated Habitat Assessment (GRIHA) 159 green technologies 181 grid-based electricity 184 Gulf of Mexico 93 Gulf of Oman 80 Gulf War 52, 54, 59, 61 health 29 health education 193 health risks 31 heating, ventilation and air conditioning (HVAC) 158 high energy prices 3 high oil prices 3 house hold energy choices 33 house hold energy use 34 human development index 19 Hydrocarbon Vision 2025 67 hydrocarbon, global consumption of 65 hydrocarbon: development 81, imports of 128; potential of 80; supply options 25 hydropower 235; potential 68 illiteracy 19 imported coal 12 improved cooking stoves 45 Indian economy 3 Indian Energy Conservation Building Code (ECBC) 158 Indian Maritime Doctrine 119 Indian Oil Corporation (IOC) 111

Indian Renewable Development Agency Limited (IREDA) 181 Indonesia 23 indoor pollution 36 infant mortality 19 Information Sharing Agency (ISC) 120 Integrated Energy Policy 6, 21, 68 integrated gasification combined cycle (IGCC) 99 International Energy Agency 66, 97, 101, 102 international oil trade 3 Iran–Pakistan–India (IPI) gas pipeline project 73, 74, 87, 90, 109 Iraq, war in 65 Iran 5 Iran–Pakistan–India (IPI) gas pipeline 87, 88, 103 Iraqi Al Basra 113 Jammah Islamiyah 113 jihadis 124 Kaiga III and IV 212, 213 Kalpakkam Atomic Reprocessing Plant (KARP) 211, 212 Karakoram Pass 94 Kazakhstan 23 kerosene 32, 35, 36 kerosene, for lighting 36, 151 KG basin 94 Khor Al Amaya 113 Kyoto Protocol 87 Lashkhae-e-Taiba 114 Leadership in Energy and Environmental Design (LEED) 159 Legal Continental Shelf (LCS) 109 Liberation Tigers of Tamil Elam (LTTE) 112, 115 lifeline energy 3, 20 lignite 22 liquefied natural gas (LNG) 52, 55, 87, 111 LNG imports 163 low energy access 6 liquefied petroleum gas (LPG) 30, 35, 37, 38 LPG, for cooking 4, 165 major energy producers/consumers 56 Manmohan Singh, Dr 89, 129, 138 Maritime domain awareness 122 Maritime logistics 110 Maritime Security Operations (MSO) 122

240

Index

maternal mortality 19 methane capture projects 100 military diplomacy 134 millennium development goals (MDGs) 20 mineral resources 132 mines, underground 12 mining 11 Ministry of Environment and Forests (MoEF) 158 Ministry of New and Renewable Energy (MNRE) 148 Ministry of Science and Technology 105 mitigating climate impacts 179 modern energy 3 modern fuels, transition to 41 modern technology, access to 6 molybdenum 215 Myanmar–China pipeline 75 Myanmar–India gas pipeline 88, 90

Oil and Natural Gas Commission (ONGC) 110 Oil and Natural Gas Commission (ONGC) Videsh Limited 72, 111 oil 101; assets 129; consumption 16, 101; consumption, transport sector 169; crisis 5 oil demand 97; China 101; dependence 226; imports 3, 51, 66, 99, 119, 132; prices 53, 59; production, Gulf region 67; resources, demand for 108 Oman–India pipeline 94 Oman–India sub-sea gas pipeline 87 Oman–India sub-sea natural gas pipeline 92 opencast mines 12 Organization for Petroleum Exporting Countries (OPEC) 56, 58, 60, 66, 105, 127

nation building 11 National Development and Reform Commission (NDRC) 98 national energy policy 224 National Hydro Energy Policy 186 national policymaking 3 National Sample Survey of India (1999–2000) 4, 149 National Sample Survey Organization (NSSO) 31 natural gas 12, 51, 60, 64, 103; import of 62 natural gas pipeline 226 neo-colonialism 131 New Exploration and Licensing Policy (NELP) 105 newer and better forms of energy, shift to 43 Nigeria 23 Nigeria, violence in 56 Ninth Five Year Plan 117 non-agricultural labour 37 nuclear electricity 208 nuclear energy 53, 64 Nuclear Energy Agency (NEA) 213, 201 nuclear energy and beyond 138 nuclear energy, growth of 229 nuclear performance 116 nuclear power 207, 209, 210 Nuclear Power Corporation of India Limited 199, 209 nuclear power programme 199 nuclear sites 216 nuclear weapons 208

Pachauri, Dr. R K 88 Perdido North Project 93 Persian Gulf 5, 80 pesticides 26 petroleum products 52 policy issues: residential sector 157; transport sector 156 poor health 19 poor human development indices 19 population growth 3, 7 poverty 6 Powergrid Corporation of India 102 pressurized heavy water reactors (PHWR) 198, 208 primary energy 22 prototype fast breeder reactor (PFBR) 199, 212, 214 public transport 15, 16, 148 quadrilateral initiative 82 radioactive elements 216 radioactive waste 215 radium 215 rail transport 12 railways 14 Rajasthan Atomic Power Station (RAPS) 216 Rational use of Energy 154 refined petroleum products, export of 53 Regional Cooperative Agreement for AntiPiracy (ReCAAP) 120 Reliance industries 103, 110 renewable energy 166, 168

Index 241 renewable energy policy 24 renewable energy: domestic consumption 182; generation of 173; incentive policy 105; law 102; potential 62; resources 197; sources 231 Renewable Portfolio Standards 185 renewables 12, 42 reserves to production ratio (R-P) 58, 59 respiratory diseases 31 road transportation 14 Round Table of Asian Oil Ministers 74, 75 Russia–Kazakhstan–Iran pipeline 75 Sakhalin-I oil project 111 Sakhalin–Nakodka–ROK–China pipeline 75 Sea Lines of Communication (SLOC) 110 Shanghai Cooperation Organization (SCO) 66, 73, 79, 82 Shipping Corporation of India (SCI) 117 Singh Mr Jaswant 128 Single-buoy moorings (SBM) 114 slum dwellers 32 solar cells 26 solar cookers 45 solar energy 28 solar lighting systems 182 solar photovoltaics 45 South Asian Association for Regional Cooperation (SAARC) 137 South Asian Gas Enterprises (SAGE) 93 special economic zones 153 strategic petroleum reserve (SPR) 102 subsidy, LPG 41 Sudan 23 Sui gasfield 89 Sui Northern Gas Pipeline Ltd 89 sulphur dioxide 100 Supreme Economic Council 89 sustainable development 163 tax credits 181 technology acquisition 28 technology, power generation 11 The Energy and Resources Institute (TERI) 186 The Energy Conservation Building Code (ECBC) 187 The Indian Navy 127

The Sagar Mala (Ocean Necklace) 123 thermal power plants, coal fired 11 thorium 28, 208 total primary energy supplies 51 traditional fuels, use of 41 trans-Asian electricity grid 104 transnational electricity trade 102 transnational pipelines 25, pipelines 77 transport sector 7, 11, 16, 146 transport sector, oil, petroleum, technology 13 Tsunami disaster 133 Turkmenisatan–Afghanistan–Pakistan (TAP) 91 Turkmenisatan–Afghanistan–Pakistan– India (TAPI) 74, 87, 90, 91, 94, 109 Ultra Mega Power Projects 99 UN Convention on Law of the Sea 109 United Nations Framework Convention on Climate Change (UNFCCC) 100 United Nations Framework Classification 12 United States Green Building Council (UNGBC) 159 United States of America 19, 23 Unmanned Aerial Vehicles (UAV) 122 uranium reserves 229 uranium, price of 202 urban transportation 14 Urban Transport Policy 15 urban transport, bicycles, cars, cycle rickshaws 15 urbanization 7 Uzbekistan–Turkmenistan–Azerbaijan pipeline 75 Vessel Traffic Management System (VTMS) 123 Water Treaty 88 Winston Churchill 5 wise use of water 155 wood chips, for cooking wood plantations 26 World Association of Nuclear Operators (WANO) 203 World Energy Assessment 20 World Energy Outlook 97, 162 World Oil Supply Report 59